2019 Loan Charge Alert: Deadline Imminent

The cacophony of groans over the 2019 Loan Charge (let out of late in HMRC’s direction) makes it worryingly easy for the very important deadline of September 30th 2018 to get drowned out, writes Julia Kermode, chief executive of the Freelancer and Contractor Services Association (FCSA).  

This is the date by which all contractors who have a loan, benefit trust or similar arrangement outstanding must have registered with HMRC if they intend to settle, thereby minimising what could be a larger, more significant tax bill. 

In the dark

What disappoints us is that we don’t think that HMRC has done enough to publicise the loan charge, leading us to suspect that there is large chunk of people who are affected by the 2019 Loan Charge, and simply don’t know either about it -- or the registration opportunity in under a fortnight’s time.

According to the Times in July, some 20,919 contractors have told HMRC that they allowed their financial affairs to be managed by offshore-based schemes. These schemes collected their wages on their behalf and then paid them in ‘non-repayable loans’ that hid their national insurance and income tax liabilities.

Put another way, they are directly in the crosshairs of the 2019 Loan Charge. That’s because under it, any contractor loan that is still outstanding on April 5th 2019 will be treated as taxable remuneration, and contractors will be obliged to pay the tax and NICs incurred. 

Full, and staggered payments

The contractors and freelancers who have so far admitted taking part in the schemes are believed to owe HMRC an average of £50,000 each in underpaid tax, meaning they will have to collectively repay around £1 billion. Rather predictably, HMRC insists they will be forced to settle their bill in full. However, there is the possibility that they may be allowed to arrange to pay it back over several years, depending on both their specific circumstances and the leniency of the tax authority.

In reality, the amount to be charged by HMRC per contractor depends on the specifics of every case. But to give some idea of the how the amounts involved accrue, an online petition gives the example of a contractor working for five years on a salary of £30,000, returning a likely liability of approx. £40,000. 

Why we support settling

In light of HMRC’s intransigence of late, we are of the belief that the only way to safeguard against the loan charge is to settle with HMRC (or ‘repay the loan’ according to the Revenue, although that seems to have practical issues if the lender has disappeared). And it’s important to acknowledge that there are some groups campaigning to stop the loan charge being implemented next year. Others want its retrospective effect removed. Unfortunately, we believe it would be foolhardy to totally rely on either of these groups being successful. 

It’s nothing to do with the groups themselves, rather that the legislation implementing the 2019 Loan Charge is very broad in scope. It is therefore unlikely, in our view, that there will be many exceptions -- if any. 

Illusion, realisation and reliance

So be under no illusion, the financial consequences are significant for contractors. And that’s not just contractors ‘in the know.’ As said at the outset, there is bound to be a large number of people who will be affected by the loan charge who, as yet, are completely unaware, and may miss the opportunity to register an interest in settling with HMRC. 

Knowing and unknowing contractors are therefore at risk of a very significant tax bill unless they take steps to register to signal settling with HMRC by September 30th 2018. But a warning if you want to settle. You may not realise but not only is the deadline less than two weeks away, but once you register you’ll receive a settlement pack from HMRC and this pack needs to be both completed and returned to HMRC by the same deadline -- Sunday September 30th 2018. So there’s not just a need to register by September 30th; there’s also a need to supply data by then too. The next step is for you to complete the settlement before the loan charge comes into force on April 5th next year.

Oh, and don’t rely on your provider (if they’re still about). On the contrary, be very wary if a scheme promoter or their representative tells you that their ‘service’ or ‘product’ is not caught by the loan charge. Definitely seek independent professional advice in this instance.

Lastly, if you’re reading this and September 30th 2018 has already passed, don’t despair. You can still contact HMRC to settle. It’s just that they won’t guarantee it can be done in time.

Editor's Note: Related --

New HMRC Spotlight on umbrella companies 'does not go far enough'

Treasury minister slammed for 2019 Loan Charge 'untruths'

Contractors' Questions: When do disguised remuneration rules bite?