2019 Loan Charge Legislation

The 2019 Loan Charge Legislation is designed to clamp down on loan-based tax avoidance schemes, described by the UK government as “disguised remuneration avoidance schemes”.

Common examples of the types of schemes covered by the 2019 Loan Charge Legislation include: contractor loan schemes, employee benefit trusts, and retirement benefit schemes financed by employers.

Although there are many variants of these schemes, they typically involve the use of loans as a means to reduce tax. A contractor would take his or her personal allowance, then channel the remaining funds through a mixture of intermediaries, gaining the additional salary amount in the form of a loan. In many cases, these schemes amounted to significant tax savings for contractors.

The recovery of unpaid taxes is considered a priority for the government in recent years. As such, this new piece of legislation strengthens the existing rules as laid out in the Income Tax (Earnings and Pensions) Act 2003.

Key Points You Need To Know

The legislation may apply to you if you have usedremuneration tax planning services involving loans to limit the amount of tax you pay in any given tax year. This covers the use of contractor loan schemes from 6th April 1999.

If you have been involved in a loan scheme, it is important to act now before the loan charge deadline of 5th April 2019 comes into force. If you are in a position where the loan charge legislation will affect you, there are three main options you can consider:

  • Accept the loan charge payment.
  • Complete repayment of the loan.
  • Pursue a HMRC settlement.

You are required under the legislation to report your involvement in any disguised remuneration schemes. You can report your involvement either to HMRC directly (the recommended option), or you can discuss this with your employer. The first step should be to contact HMRC to disclose your involvement in such a scheme. Advice from HMRC is readily available on how to settle your tax affairs.

Otherwise, you will be liable for additional charges unless you undertake the required steps. If there is no settlement, you will be required to complete payment of any outstanding loans using PAYE.

How App Paye Can Help

One way of keeping your tax affairs HMRC compliant is by utilising an umbrella company, such as provided by App Paye. By becoming an employee with the flexibility to take on as many jobs as you wish, you can ensure you pay the correct amount of tax and avoid disguised remuneration avoidance schemes.

As a contractor, you will benefit from easy, instant payments, reliable service, and the support of a fully integrated PAYE system. If you are a recruitment agency, your business will be streamlined by a dedicated account manager, leaving you with more time to focus on recruitment the most suitable people for the job.