This is a scandal of our times; for years thousands of employees and contractors were persuaded to take loans from their employer or engager, on the understanding that the arrangement was totally legal, and they would never have to repay the loan. These individuals now face huge tax charges and penalties, as we outlined in our newsletter on 16 November 2017.
HMRC is offering a settlement opportunity for both individuals and employers, which covers all sorts of loan schemes, including EBTs. There are no special terms for this settlement, interest will be payable on late paid tax and NIC, and regular penalties may also be due.
The settlement is merely a means to regularise historic tax issues and avoid increased penalties and charges imposed by:
- Requirement to correct (RTC) – where an overseas body was involved.
- Accelerated payment notice (APN) – where the scheme had a DOTAS number.
- Follower Notice (FN) – where a similar scheme has been defeated in the courts.
- Serial tax avoidance regime (STAR) – where the taxpayer used one or more tax avoidance schemes, which failed, or they exited from, after 5 April 2017.
- Loan charge – for any loans outstanding on 5 April 2019.
To take up the settlement offer the taxpayer must register an interest with HMRC to do so by 31 May 2018, and provide sufficient information to HMRC by 30 September 2018. The settlement must be completed before 5 April 2019, or the loan charge will apply.
If the taxpayer does not pay the tax due either under an agreed settlement, or when required by APN, or FN, the penalties can be as follows:
- RTC: 100% to 200% of tax due and publicly named.
- FN: up to 50% of tax advantage.
- APN: up to 50% of tax advantage.
- STAR: 20% to 60% penalties if new schemes are used within 5 year monitoring period.
- Loan charge – all outstanding loans treated as employment income in 2018/19, but this does not amount to settlement of the tax due, so taxes on the actual loan may still be due.
If you have any queries please contact our office.
Written by the Tax Advice Network