Contractor Settlements - the final countdown
Over the last year or so , Richard Coombs has written a number of articles on the April 2019 Loan Charge legislation. Richard gives us an update on the current position:
"There are fewer than 90 days before the charge will bite. For the vast majority of people the existence of this new legislation will have passed them by, and rightly so. However, for anyone who has previously been involved in an Employee Benefit Trust, a contractor loan scheme, a FURBS or EFRBS scheme or anything similar where loans were taken as part of the planning then time is running out to act.
Whilst D-Day of 5 April 2019 has moved inexorably closer, in the background there has been a lot of activity with various groups of taxpayers attempting to forestall the legislation’s introduction. There has been an “early day motion” in Parliament to try to mitigate some of the more penal effects of the new rules as well as a damning report from the House of Lords attacking the gross unfairness of the rules on some taxpayers. The matter was debated again in Parliament on 8th January and the Government has agreed to prepare a report on the impact of the loan charge legislation before 30 March. For many this is a chink of light in a very dark tunnel, although I don’t think many people are expecting anything to change.
What has caused the furore is not so much the idea that these tax avoidance schemes should be defeated but that many unsuspecting taxpayers, particularly contractors, entered into these structures completely unaware that HMRC did not agree with them. Many of these taxpayers correctly disclosed their participation in the structures but received no enquiry from HMRC and HMRC are now out of time to go back and challenge them. Instead, HMRC have obtained a second bite of the cherry by introducing the loan charge which will tax anyone with a disguised remuneration loan, irrespective of whether HMRC were out of time to attack the original planning or not. Many of these contractors simply do not have the funds to settle the tax liability and are facing financial ruin.
The difficulty for the Government is that it is impossible to weed out those innocent participants from those who actively pursued a tax avoidance strategy. Tax is often a “one size fits all” mechanism and therefore there will always be winners and losers.
So what is our current advice to clients? As is often the case, the answer is “it depends”. Realistically, if there is going to be any amendment it is likely to only affect those where there is no open enquiry, which will be by far the minority. For those people there may be merit in holding off settling any “out of time” schemes until there is some further clarity on the new rules in the coming weeks. However, we are always happy to discuss individual circumstances and therefore please feel free to get in touch if you are concerned about your own situation.
As always with tax, this information is generic in nature and you should take no action based upon it without consulting your professional advisor.
Contractor settlements update
It’s still not too late to settle EBT or contractor loan liabilities with HMRC
We have been kept very busy this year with a regular stream of people contacting us who have been involved in Employee Benefit Trusts or contractor schemes and who are now facing significant tax liabilities as a consequence of the introduction of the April 2019 loan charge legislation.
Richard Coombs, one of our tax directors, has written a number of articles on this during the year in an attempt to distil the fact from the fiction in what is an extremely complex area and all of these can be accessed on our website. We are currently acting for dozens of affected clients in an attempt to secure them the best settlement deal possible with HMRC.
Whilst HMRC issued a deadline of 30 September to provide them with all relevant information, it isn’t too late to try to settle your affairs in advance of the 5 April 2019 loan charge. The deadline was to give HMRC time to process all of the cases and by providing information before that date HMRC were guaranteeing to have your case processed by then. However, that doesn’t mean that if you missed this deadline you are definitely too late. If you are affected by these schemes you really do need to act to ensure you don’t end up paying too much tax and so please get in touch if you think you need assistance.
We are receiving increasing numbers of enquiries from contractors who have now received their settlement calculations but do not know a) whether the tax calculation is correct or b) even if it is correct whether or not they should settle.
It is important to stress that settlement is not compulsory and there are various factors to take into consideration when deciding whether to settle, such as:
- Are there open enquiries into the contractor’s personal tax returns for the relevant years?
- What type of scheme the contractor was involved in
- How long ago the planning was done
- Whether the planning was done over more than one tax year
- The current and projected income levels of the contractor
It may well be the case that settlement is not the best answer. Accordingly, if you have clients involved in contractor schemes please feel free to get in touch with me, Richard Coombs at firstname.lastname@example.org and we would be happy to share our views on this complex area.
Richard Coombs, explains why it's not too late to act and the importance of taking professional tax advice given the amount of misinformation circulating on this subject.
"If you have a loan from an Employee Benefit Trust or a contractor scheme, then you will no doubt be aware that there is a looming tax charge which will bite on 5 April 2019. My previous articles have explained how the charge works and what you can do about it, so I will not repeat the detail here, but a lot was made about HMRC’s apparent deadline of 31 May to register your interest in settling your tax affairs. Many feared that if you missed this deadline then you could not guarantee that you would be able to settle your tax affairs in advance of the 5 April 2019 loan charge.
As it turns out, it seems that this was somewhat of a false deadline as HMRC have since confirmed that provided that they receive all the information they need to prepare settlement calculations by 30 September 2018 then you should still be able to settle in time. To be fair to HMRC, 30 September 2018 has always been there as a long-stop deadline, but it did previously appear that if you missed the 31 May registration deadline then you had missed the boat. This is not the case and therefore if you want to discuss the possibility of settling your tax affairs in respect of historic loans from EBTs or contractor schemes then there is still time to do so. We have taken a lot of calls (from contractors especially) who are unsure what to do and we continue to be happy to take such calls. We never charge for an initial chat and so would encourage anyone who is unsure of their position to get in touch.
What has been worrying over the last few months is the number of contractor providers who appear to be leaving their clients to deal with the situation themselves. We have heard numerous stories of the provider simply not taking calls or referring their clients to another (often related) firm who then tries to sell them another scheme to avoid the charge. The numerous contractor online chat-rooms are also full of mis-information, often from well-meaning contributors, but who are not perhaps as up to speed on the legislation.
We have also come across a number of structures where the loan provider has indicated to the contractor that the April 2019 loan charge will not apply, without really giving any justification for this stance. The issue with this is that, as the contractor, it is your responsibility to notify HMRC of any loans which might be caught. If you fail to do so you could be liable to a penalty. We would therefore always urge caution and suggest that anyone with such loans speaks to a tax professional with expertise in this area. We are always happy to help so please feel free to contact us."
Richard Coombs email@example.com