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Contractor Tax: The HMRC Loan Charge

This week, the BBC’s finance expert Paul Lewis discussed the contractor loan charge scheme on Radio 4’s Money Box programme and how it is likely to see contractors receive demands from HMRC for unpaid tax.

Mr Lewis interviewed a social worker who said she would be forced to sell her house and car to pay the tax demands she has received and will never be able to afford to retire as a result.

The HMRC views ‘disguised remuneration’ schemes that replace income with loans, as tax avoidance and have set a deadline for contractors using such schemes to come forward.

The loan schemes, offered by intermediaries (such as umbrella companies) in an attempt to boost take-home pay work by paying contractors a small portion of their salary as a PAYE income, and the balance in the form of a loan which would not be liable for tax or National Insurance deductions. HMRC deem this as tax avoidance and have implemented legislation to collect unpaid taxes from contractors that have used the schemes.

The loan charge will be due in April 2019 for anybody the HMRC decides has used a disguised remuneration scheme.

Contractors are urged to seek independent financial advice from a qualified accountant if they believe they may have used a disguised remuneration scheme and to contact HMRC ahead of their deadline of 30 September 2018.

The HMRC guidance states that contractors contacting them before the deadline will be eligible to agree on an instalment plan to spread payments over several years should they meet certain criteria.

They say that contractors missing the deadline could receive demands for all outstanding tax which will be due on 5 April 2019 and this includes further enquiries into your affairs, higher tax bills, interest and possible penalties.

Sanctuary Personnel has a stringent due diligence process and carries out regular audits of all umbrella organisations to ensure all of our workers are paid compliantly.
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