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Tax avoidance loan schemes and the loan charge
Loan charge scandal labelled 'cover-up' - but what is it?
MPs warn that the loan charge could be another post office scandal with tens of thousands of people across the country facing crippling tax demands from HMRC.
https://www.youtube.com/shorts/bmF5esSaYNc
Loan schemes – the facts
Loan schemes - otherwise known as ‘disguised remuneration’ schemes - are used to avoid paying Income Tax and National Insurance.
HMRC has never approved these schemes and has always said they don’t work.
The loan charge works by adding together all outstanding loans and taxing them as income in one year. The result is that you’re likely to pay tax at higher rates than you would have at the time you were paid in loans. If you settle your tax affairs before the loan charge arises you will pay tax at the rates for the years you received the loans.
The loan charge policy is expected to protect £3.2 billion, which can be used to support our public services.
An estimated 50,000 people have used a loan scheme that will be affected by the loan charge. Most of them work in the ‘business services’ industry – this includes jobs like IT consultants, financial advisers and management consultants. Read more detail about who’s affected.
We want to make sure everybody pays their fair share of tax and contributes towards the vital public services we all use.
https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge#:~:text=Loan schemes - otherwise
Comments
https://www.msn.com/en-gb/money/news/my-world-fell-apart-rise-in-suicide-attempts-linked-to-hmrc-tax-crackdown/ar-AA1CRbvY?ocid=BingNewsSerp#fullscreen
https://www.bbc.co.uk/news/articles/c5yv9ej9n49o
What is the loan charge?
The 2019 loan charge is an anti-avoidance measure, introduced in Finance Act 2016 to address the tax loss to the Exchequer from a variety of ‘disguised remuneration’ schemes. Under such schemes, individuals were paid in the form of loans, replacing part or all of their salary. Usually these loans were provided not by the employer, but by a third party such as an ‘employee benefit trust’ funded by the employer; and critically, the loans were structured so that they were unlikely ever to be paid back. This was done because loan proceeds, unlike salary, are not normally income, and therefore are not subject to income tax or National Insurance (employee or employer).
Under the loan charge legislation, which was approved by Parliament and which HMRC are tasked with administering, any loans taken out in such circumstances since 1999 and still outstanding on 5 April 2019 became taxable as income in one go on that date. In the period up to 5 April 2019, those affected were encouraged to enter into negotiations to settle past tax liabilities on the basis that the ‘loans’ were taxable as income in the years they were taken out. Those agreeing settlements would not be subject to the loan charge.
If it’s about tackling tax avoidance why is it so controversial?
Three main reasons – its retroactive character, stretching 20 years into the past; the size of some of the sums being demanded; and the circumstances in which some of the schemes were entered into. Specifically some of those caught by the loan charge argue they were misled and in some cases effectively coerced into entering these schemes as the only way of securing a job.
These arguments are explored further below.
https://www.tax.org.uk/blog-the-loan-charge-an-explainer
In the Post Office one, innocent people were told lies about the accounts. A faulty accounting system (for which the Company responsible have never paid what they should) and totally innocent victims.
This one? People knowingly took part in a shonky tax avoidance scheme. Which-like so many of these things-was declared to be tax evasion (illegal) rather than tax avoidance (legal).
Do I have an amount of sympathy? Yes. Going back 20 years seems unduly harsh. It might have been "fairer" if these people were responsible for some (not all) of the tax-as advisers and "employers" (they were not technically employers) should also be liable.
But these people-unlike Horizon-were very much part of the problem. And-while these people are complaining-let's not forget that they are only being asked to pay the tax that should have been paid in the first place.
45,000 cases remain unsettled.
Of which around 40,000 are individuals, and 5,000 companies.
You have to ask yourself what planet these people were on.
I am not sure that anyone could convince me that I could draw my income as loans, which would never have to be repaid, and completely avoid income tax, and NI.
Greed is usually the main motivation in falling for these schemes.
This one appears ridiculous, and as you say has nothing in common with the Post Office scandal.
Many years ago I was a director of a Company, and discovered that a fellow Director was being paid in this way.
I took independent legal advice. I resigned from that Company without telling them why...