Legislation comes into force in April 2019 that will force those who have used a disguised remuneration scheme to pay or receive wages to pay back the tax that they avoided, and thus owe to HMRC. But what does this mean and who is affected?
What is disguised remuneration?
Colloquially referred to as the ‘2019 Loan Charge’, disguised remuneration refers to earned income which was received via non-taxable means in order to avoid paying national insurance contributions or income tax. For the most part, this means ‘loans’ from an employer which were never expected to be paid back or accrue interest, meaning that they are essentially just a salary. Other forms of this include retirement benefit schemes and employee benefit trusts.
Of course, there are legitimate trusts, benefits and loans which can be given by employers to employees, but if these were never intended to be paid back, or have not been declared so that they can be taxed properly, then they count as disguised remuneration.
Who is affected by disguised renumeration?
Businesses who have avoided tax in this way deliberately should already be aware that they may become liable under this legislation and need to start thinking about how to pay the tax that they owe back. However, this can also affect contractors, agency workers, nurses and supply teachers, who may have been forced to use one of these schemes in order to work and be paid by a company. These people may not even know that they owe this tax.
Anyone who has taken temporary work or been paid by an umbrella company needs to look into their pay and work out whether or not they were paying the correct tax. The way that these schemes generally worked, was that a worker was paid for the temporary or contracting work that they did by a separate business (umbrella company). This company would take the full amount earned by the contractor and pay them minimum wage or just below, thus avoiding NI contributions and income tax, whilst keeping the rest of the wage in ‘fees’.
HMRC are looking at loans made to workers dating back to April 6th 1999, meaning that up to 2 decades worth of tax might be owed from one contractor or agency worker.
Shouldn’t the umbrella company be paying this tax?
Technically yes. It is down to the choices of the umbrella company that the tax wasn’t paid, and not the contractor in many cases. HMRC will first attempt to take the tax from this company before they approach the contractor apart from under certain circumstances, including:
- If the company no longer exists.
- If the company is based outside of the UK and thus isn’t liable to pay tax in the UK.
- If the company exists but is unable to pay.
- If the company exists but HMRC believe that you were always aware that you should have been paying tax on your earnings and failed to do so.
Workers may find this unfair, and it is, for those who were forced into the situation and are now being required to pay tax that a separate entity should have been paying. In this instance you should contact HMRC as soon as possible to discuss the situation, as HMRC is willing to work on a case-by-case basis and provide advice and assistance as long as you come forward and make your case as soon as you can.
What can you do if you think you’ve been affected?
The new legislation comes into effect on April 5th 2019 and businesses and individuals who think that this might affect them should come forward and settle their tax before this date. You can contact HMRC over the phone or online to discuss it if you aren’t sure whether or not you owe tax, and to talk about what you can do next.
If you have copies of your old wage slips and accounts this will make it easier for yourself and HMRC to work out whether or not you have paid all of the tax that you owe, as well as to work out what you still need to pay. If you have been filling out self-assessment tax returns, copies of these should also help you, and will make it much faster to find out how much tax you have already paid and what you should have been paying.
How can the tax bill be settled?
Tax will be added up as though all of the earnings happened in the past tax year (2018/19) and then taxed accordingly, presenting you with one overall tax bill. HMRC will allow businesses and individuals to set up payment plans to make paying the tax back more affordable.
Those with a taxable income of less than £30,000 can spread their payments out over 7 years, whilst those with an income of between £30,000 and £50,000 have 5 years to pay their bill. For higher earners, HMRC will entertain an application for an extended period as well, but this will be handled at the discretion of the HMRC and will require further information and evidence to work out.
Seeking advice
HMRC is willing to work directly with those who have already extricated themselves from a disguised remuneration scheme, or those who want to, and can help you to remedy the issue and get up to date with your tax. If you speak with them as early as possible. HMRC can help you to work out and settle up what you owe before you have to worry about paying any extra charges
If you feel uncomfortable with contacting HMRC directly, there are various charities who can help you. Tax Aid works with people under 60 and will act as a go-between with yourself and HMRC, whilst Tax Help for Older People provides free assistance for people aged 60 years and over. These charities are perfect for offering assistance and advice for those earning less than £20,000, who are those most likely to be negatively affected by this change in the law.
Further information and help
This legislation has been subject to huge controversy due to it’s potentially devastating consequences on the individuals affected. The best approach for working out a strategy with HMRC and not being steamrolled by them into a draconian agreement is to speak to an accountant who is familiar with the legislation and can present the best case on your behalf.
If you are affected and need help please call us on 01473 744 700 or email us on contactus@aag-accountants.co.uk to discuss further.