Time's almost up for Sanzar contractors

The clock is ticking for Sanzar loan scheme contractors to come clean to the taxman, assuming that they wish to avoid penalties of potentially up to 200%, writes Emma Perry of London accountancy firm Emma J Perry & Co.

Who’s affected? Maybe you

Before explaining why time is of the essence, it is vital to first point out who is meant by ‘Sanzar loan scheme contractors.’ Indeed, you might actually be one and not know it, because a particular provider can trade through different business entities over a period of time.

In fact, Sanzar Partnership Trust started life involving an Employee Benefit Trust but after April 5th 2009, it morphed into Sanzar Solutions (which also involved trust arrangements).

Contractors’ Questions

The first question contractors often ask when referred to us by their accountant (even veteran accounting advisers don’t have the stomach to fight HMRC over an Isle of Man partnership EBT scheme), is ‘Can the Contractor Loan Settlement Opportunity (CLSO) sort this all out?’ 

The answer, unfortunately, is ‘No, not for many.’ But EVERYONE who has participated or used a Sanzar pay scheme should engage with the Revenue about the CLSO before June 30^th 2015. This really is the deadline because CLSO will close then; it’s already been extended once and HMRC has vowed “we will not extend” it again.

The second question contractors tend to ask is ‘Why should I use the CLSO?’ Here’s five reasons:

1. By registering for the Contractor Loan Settlement Opportunity it merely gives you the option (but does not obligate you) to use the opportunity
2. The CLSO might exclude certain years completely if there is no open appeal against a discovery assessment or enquiry into a tax return for the relevant year
3. Your loans are treated as income under the Transfer of Assets Abroad ,which means you are taxed on your loans and NOT your invoice value
4. You will avoid National Insurance altogether which may not be the case later
5. If you agree settlement with HMRC it is unlikely that you would be charged a penalty - but HMRC will tell you early on if you will be

So whether you currently contract or work in the public sector, financial services, technology or any other industry, you now only have 20 days from the date of this article to engage with HMRC about the CSLO, if you’re affected and wish to settle.

Some contractors have been left in no doubt that they ARE affected. In particular, we estimate that thousands of contractors have received an Accelerated Payment Notice (APN) from HMRC over their use or participation in a Sanzar-promoted scheme. 

Eight considerations for APN Sanzar contractors

If that’s you, and you’re staring at an APN from such arrangements, consider the following questions:

• Is your APN legal? (If it’s not, then it can be withdrawn) 
• Is your APN correct? (If it’s not, then the figures need to be amended)
• What would happen if you don't pay within the time limit?
• Have you made representations to HMRC?
• Are you entitled to an additional 30 days to pay? (Where you have made representations against an APN, the Revenue might grant you up to an additional 30 days to pay depending on how long it takes them to reply)
• Do you know what the HMRC penalties are for not paying on time? (See the blue subtitled section here if you don’t).
• Are you going to challenge HMRC's position on Sanzar Solutions?
• What are the ‘pros’ and ‘cons’ of consulting a tax investigations specialist?

As to the last question, we would obviously answer that the ‘pros’ outnumber any ‘cons.’ Keep in mind - when faced with an APN or not, a wrong decision by a Sanzar loan scheme contractor could double the tax liability. Also consider; overcharging by HMRC is now a regular occurrence.

If you do want a tax investigations specialist on your side, find one who works for a fixed fee, otherwise it might not just be the taxman charging you over the odds, at what he’s already keen to ensure is going to be an expensive time for you.

This article is an updated version of the one originally published.