2019 Loan Charge

With less than one month until the changes on outstanding disguised remuneration loans (also referred to as 2019 Loan Charge) kicks in, we take this time to give you the low down on everything you need to know.

Background to 2019 Loan Charge

The 2019 Loan Charge was announced in the 2016 Budget as part of the Finance Act [2] 2017. It specifically applies to people who use disguised remuneration schemes and who have not repaid or made arrangements with HMRC to pay any outstanding loans.
Disguised remuneration schemes are deemed to be tax avoidance schemes. The most common one used is known as the Employee Benefit Trust (EBT), but there are others in existence. They were promoted on the basis that they could be used to avoid paying Income Tax and National Insurance Contributions as the money used in such schemes was classed as a loan.

It is estimated that around 50,000 people will be affected by the 2019 Loan Charge, with the vast majority (65%) working as Management Consultants in the IT sector.

How the 2019 Loan Charge works

The Loan Charge applies to loans that were made since 6th April 1999 (yep, that’s right, dating back 20 years!) and which are still outstanding as of 5th April 2019. However, if you are working towards paying off any outstanding loans or have contacted HMRC to agree on a repayment settlement, then the loan charge won’t apply to you. If not, then tax liabilities will automatically be added.
To date, HMRC has agreed settlements worth in excess of £1 billion and surprisingly 85% of this amount has come from employers. If you have used a disguised remuneration scheme and have not settled repayment of the loan or made arrangements for repayment, you must contact HMRC immediately. You can call them on 03000 534 226 or email them on c.l.resolution@hmrc.gsi.gov.uk.

What are your options?

HMRC understand that you may not be in a position to repay the amount in one go. If you think you’ll find it difficult, you may be able to come to an arrangement to pay it back in stages. Help is available for those who are no longer in a scheme and whose taxable income for 2018/19 is less than £50,000. These people do not need to provide evidence of their income and they’ll automatically be able to spread their repayments over five years. Or, seven years if their taxable income is less than £30,000.
For individuals whose taxable income for 2018/19 is over £50,000 or those who feel they need longer to repay the amount, they may be able to arrange a repayment plan by providing supporting evidence.

There are some firms who are promoting options that say they enable people to escape the Loan Charge. This is rubbish! And, such schemes could even be fraudulent. Your best option to avoid the charge is to repay the amount in full or contact HMRC to arrange a repayment plan.

If you are concerned you may be affected by the 2019 Loan Charge, speak to one of our Directors on 01962 867550 to clarify your position. We can then advise you on the next steps, including how to contact HMRC in regard to any amount that is outstanding.