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FCSA is today reminding all contractors who might have an outstanding contractor loan, benefit trust or similar that they are at risk of a very significant tax bill unless they take steps to register to settle with HMRC by 30 September 2018. This is because HMRC’s 2019 loan charge is starting to bite. Under the charge, any contractor loan that is outstanding on 5 April 2019 will be treated as taxable remuneration, and contractors will be obliged to pay the tax and NICs incurred.
The amount to be charged depends on the specifics of every case, but according to an online petition a contractor working for 5 years on a salary of £30,000 could be liable for a sum of around £40,000. The only way to safeguard against the loan charge is to repay the loan or settle with HMRC. Contractors wishing to settle will need to register with HMRC by 30 September in order to ensure that settlement can be reached prior to the loan charge coming in April 2019.
Whilst there are some groups campaigning to stop the loan charge being implemented next year, it would be foolhardy to rely on them being successful. According to a Times article that appeared in July, some 20,919 contractors have told HM Revenue & Customs (HMRC) that they allowed their financial affairs to be managed by offshore-based schemes, which collected their wages on their behalf and then paid them in “non-repayable loans” that hid their national insurance and income tax liabilities.
The 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. HMRC insists they will be forced to settle their bill in full, although they may be able to arrange to pay it back over several years depending on their specific circumstances.
FCSA’s chief executive Julia Kermode said: “The financial consequences are significant for contractors and I don’t think that HMRC has done enough to publicise the loan charge, nor its impact on contractors. I am very concerned that there are large numbers of people who will be affected by these loan charges who are, as yet, completely unaware, and may miss the opportunity to settle before it is too late.
“The legislation is very broad in scope so it is unlikely that there will be many exceptions, if any. My advice is to be very wary and sceptical if scheme promoters tell you that theirs is not caught by the loan charge and seek independent professional advice.”
HMRC is advising anyone who might be in a contractor loans scheme to contact HMRC’s Contractor Loans helpline on 03000 534 226 or email email@example.com