Contractor Loan Scheme guidance updated

Official guidance on contractor loan schemes has been updated by HM Revenue & Customs.

Spanning some five chapters, the guidance says that HMRC can tax loans paid to contractors or freelance workers through trusts or umbrella companies, “just like normal income.”

The clarification comes just as a new batch of demands for loan repayments have been sent by providers (those who control the loans) to contractors who used a scheme that ran from 2008 to late 2010.

Some scheme users report surprise at hearing from the tax authority let alone the loan providers, as HMRC previously gave September 30th 2015 as the final opportunity to agree a settlement under the CLSO.

However, at Budget 2016, HMRC threatened retrospective action against the former users of disguised remuneration schemes who had so far declined to take up the CLSO.

The department said at the time: “All loans or debts from a disguised remuneration scheme will be taxed as earnings if they haven’t already been fully taxed or repaid on or before 5th April 2019.”

Tax dispute specialist WTT Consulting, which is now advising contractors about loan repayment before 2019, warns that the new repayment demands it has seen “could be the thin end of a wedge.”

In an online post, the specialist also said: “We're looking at the position, for contractors, on loan repayment demands and loan ‘write offs.’ This will include how the tax position is impacted”.

WTT has previously urged contractors to take a cautious approach to HMRC’s guidance, the new version of which directs those who wish to settle to HMRC’s Contractor Loans Helpline.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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