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Disguised Remuneration: The impending 2019 loan charge

Posted on 27 February 2019

Disguised Remuneration: The impending 2019 loan charge

Employers and employees who have participated in disguised remuneration schemes must consider the status of any outstanding loans in advance of the impending 5 April 2019 loan charge deadline. The 5 April 2019 loan charge is the new one-off tax charge that will apply to certain loans made since 6 April 1999 if they are still outstanding on 5 April 2019. In broad terms, the legislation imposes a charge to income tax and National Insurance Contributions (NICs) due under PAYE on the full value of any loan caught by the new rules.

HMRC brought in the loan charge primarily to address disguised remuneration schemes that pay individuals in the form of loans via vehicles such as Employee Benefit Trusts (EBTs) and EFRBs as a way of avoiding paying income tax and NICs. Perhaps the most well-known example is that of the Rangers Case. The loans were never intended to be repaid and were therefore seen as being no different to normal income. As normal income, the loans were taxable as such. "Loans" for these purposes includes any form of credit and any payment that purports to be a loan.

In considering the impact of this new legislation, one must consider: (1) whether a loan or quasi-loan been made; (2) whether it was made after 6 April 1999; and (3) whether the loan is still outstanding.

If the answers to these questions are "yes", then the loans will likely be caught by the charge and the taxpayer should either make arrangements to repay the outstanding sum or settle the tax due with HMRC. The loan charge will not apply if the taxpayer has settled or the loan has been repaid.

For those who want to settle, HMRC has established specific settlement terms dependent on the facts. For those considering repaying the outstanding loans, since 17 March 2016 only "payments in money" count as repayments of outstanding amounts. Additionally, any repayments must be made by the debtor and, therefore, cannot be repaid by anyone else on the debtor's behalf (for example, an employer on an employee's behalf). Entering into discussions with HMRC with a view to settlement or repayment may take some time.

Those who may be affected by this legislation are advised to seek advice as soon as possible.

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