Schemes aimed at helping expat contractors avoid the disguised remuneration loan charge are doomed to fail, says HM Revenue & Customs.
The loan charge applies to contractors who drew their income as loans instead of salaries, intending that the loans were never repaid as income tax is not applied to borrowed money.
The latest Finance Bill closes the door on taking income as loans by banning disguised payments and applying tax to any arrangements made as long ago as 1999.
HMRC argues the tax claims are not retrospective following a law change as the payments have remained outstanding for up to 20 years.
HMRC is now warning taxpayers expecting a loan charge bill that some advice firms are selling schemes offering ways to avoid paying the tax due.
“HMRC is aware of more arrangements currently being marketed that also claim to avoid the loan charge. It is HMRC’s strong view that these schemes do not work and HMRC will tackle the promoters and users of these arrangements,” said HMRC.
“Beware of any arrangement that suggests a disguised remuneration loan can be ‘paid off’ or ‘repaid’ without a real economic consequence to the transaction – suggesting that the scheme user will not suffer any material financial cost (apart from fees).
“Any scheme or arrangement that claims to avoid the loan charge is tax avoidance. If it looks too good to be true, it usually is.”
£3.2 billion windfall
HMRC added that many of the schemes are marketed offshore, typically in Cyprus or Malta, and claim that by entering the scheme disguised remuneration loans would be paid off.
The tax man also warns against schemes promoted with “professional marketing material”, which means they are not tailor-made for individuals.
Joining one of these schemes likely leads to the promoters charging fees and expenses which taxpayers could lose and still face paying the tax they are trying to avoid, which adds to the losses they have already suffered from signing up to the original avoidance scheme that has now failed.
HMRC estimates 50,000 taxpayers may have to pay the loan charge and that the average bill is around £13,000, leading to a £3.2 billion windfall for the Treasury.