Contractors Pay £1bn To HMRC Over Disputed Loan Charges

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Expats who took advantage of borrowing money from their contractor companies rather than taking salaries to minimise tax are under siege from the UK tax man.

In the latest move, HM Revenue & Customs has arrested five men and a woman for promoting fraudulent schemes aimed at avoiding the loan charge.

The six have been released pending inquiries, says HMRC.

The loan charge was announced in 2016 as a measure to close a loophole that allowed tens of thousands of contractors to avoid income tax and national insurance contributions due on their earnings.

HMRC invited contractors and their companies to settle their loans and to pay the tax due by April this year.

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Bankruptcy concerns

Around 50,000 contractors are estimated to have sheltered their earnings in the scheme.

HMRC suggests half have settled their bills, raising around £1 billion out of an expected £3.2 billion windfall for the Treasury.

Many of those who have failed to settle face tax bills of £100,000 or more and are concerned HMRC will make them bankrupt.

The new work arounds are termed as ‘bets’ by contractors with the organisation that agreed their loans. The bets were framed so the contractor was likely to win, so the money gained would clear the loan.

Generally, winnings from bets are tax-free in the UK.

Cleaners’ tax scheme bites the dust

But HMRC argues the bet scheme did not work in law and that the terms could be construed as tax evasion, which is a criminal offence.

“We strongly encourage people not to use loan-busting schemes and methods,” said an HMRC spokesman. “They clearly don’t work and people run the risk of losing more money and being involved in fraud. As we always say — if it looks too good to be true, then it undoubtedly is.”

Meanwhile, HMRC has won a long-running case in the Court of Appeal against five cleaning contractors who took their earnings as dividends paid on shares they held in their own personal service companies.

“HMRC’s firm view, now supported by the legal decisions, has always been that these types of arrangements do not work,” said a spokesman.

Find out more about HMRC and the loan charge

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