HMRC is currently offering a settlement opportunity, available until 9 January 2015, for the users of contractor loan tax schemes for tax years up to 5 April 2011.
Commonly known as a tax-avoidance arrangement, a contractor loan scheme is a tax scheme whereby, according to HMRC, “…non-UK employers have paid you untaxed income or given you a loan instead of part of your salary.” Users who agreed to be paid in this way argue that being paid via a loan means they’re not subject to income tax, however, HMRC views these loan schemes as a “particularly aggressive” method of tax avoidance.
Speaking on the issue of tax avoidance, and the settlement opportunity currently being offered, Jennie Granger, Director General for Enforcement and Compliance at HMRC said, “Many people regret ever getting involved with complex aggressive tax avoidance schemes and HMRC is providing an opportunity for contractors to come forward and straighten out their tax affairs.”
Your Eligibility
Designed to allow you to “bring your tax affairs up to date on the best possible terms,” anybody who has used a contractor loan scheme can take up this settlement opportunity from HMRC unless you’re currently:
- Subject to HM Revenue & Customs’ (HMRC’s) criminal investigation policy,
- Subject to civil investigation of fraud procedures,
- A UK employer who has used an Employee Benefit Trust and should being using the employee benefit trusts settlement opportunity.
More details can be found on the settlement opportunities page on HMRC’s website surrounding individuals who can and can’t take advantage of this settlement opportunity. Needless to say, if you’re unsure whether you’re eligible to use this opportunity, speak with your accountant before contacting HMRC directly.
Know What You Owe
Whether you (or your accountant) contact HMRC to take part in this settlement opportunity, or you get a letter from HMRC to let you know they believe you owe them unpaid income tax due to your use of a contractor loan tax scheme, HMRC may estimate the income tax you owe based on typical rates.
For this reason you should make a point to check your personal bank statements and records to let HMRC know of the exact amounts you received via your contractor loan tax scheme. To know how much you owe prior to agreeing to settle, complete form DO3 to request a calculation.
Agreeing to Settle
If you agree to settle, the terms of any signed agreement will become legally binding between both you and HMRC, and will not be affected by any further legal proceedings going forward.
Your settlement will include late payment interest for income tax payments HMRC believe you should have paid, but by coming forward as part of this opportunity you will not be liable to any penalties (however, if any of your loans came from a trust you may have to pay Inheritance Tax on the amount due).
Interest will add up from your original income tax due dates until the moment you pay.
Refusing to Settle
If you choose not to take advantage of this settlement opportunity HMRC will continue in their efforts to ensure that anybody who has previously used a contractor loan tax scheme to avoid paying income tax eventually pays back what they owe, with interest and National Insurance Contributions (NICs), alongside significant monetary penalties.
Interested in a Settlement Opportunity for Contractor Loans?
To speak with a professional to discuss the settlement opportunity for contractor loans, or anything else, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.