Disguised Remuneration schemes have allowed for individuals to avoid tax, costing the Exchequer hundreds of millions every year. Whilst previously employers or contractors who had in the past received remuneration disguised as loans only had until 30 September 2018, HMRC has now extended this deadline. The penalties imposed by HMRC can still be avoided on the basis that a settlement is made before 5th April 2019.
As of this date (5th April) any outstanding loans that have not been settled with HMRC will be deemed as earnings for that financial year. This may result in potential charges of over 60% comprised of amounts up to 45% income tax, 2% employees’ and 13.8% employer’s NIC.
These payments are most likely to be collected via PAYE from the employer involved in the scheme. Any employees that received a loan will be required to provide details to their employers by 15th April 2019 and HMRC by 1st October 2019. Any noncompliance from either parties will result in significant penalties.
Review Your Options
With just a few months before the Disguised Remuneration charges are enforced, employers involved should now be using this time to consider their options. The ‘Settlement opportunity’ offered by the HMRC will include income tax, primary and secondary Class 1 NIC’s and inheritance tax combined with an interest rate for late payment.
This settlement offer is likely to be the most financially beneficial option left on the table for many. The HMRC is willing to assess each case individually and for those who struggle to pay their tax bill on time they are open to negotiation to help spread the payment liability.
If you are an employer or participant that is likely to be affected by these coming changes it is advisable that you seek council from an accountancy service and decide on a course of action to avoid the significant penalties.