The law of unintended consequences came into play when the government changed the off-payroll working (IR35) rules for public sector contracts. Those contracting to public bodies such as NHS trusts suffered reductions in their take-home pay, and were tempted into using disguised remuneration schemes to make up the losses.
These schemes are variations of contractor loans which were closed down by anti-avoidance legislation years ago, but doctors and other health service staff are still being sold these complex and illegal schemes. We are warning clients who work in the public sector that schemes with tag lines such as “fully compliant 90% take home pay solution”, are illegal and if the promoter claims the scheme is approved by HMRC, it most certainly isn’t.
What is worse for the promoters and users of those schemes, is the general advisory panel of the general anti-abuse rule (GAAR) has recently ruled that a contractor loan scheme and a scheme involving employee loans, are both abusive arrangements. This means that HMRC can now issue counteraction notices to users of those schemes.
These notices may lead to the taxpayers being liable for a GAAR penalty, and will trigger the issue of an accelerated payment notice (APN) to demand payment of the avoided tax. The penalty and tax payment can both be enforced without the scheme having to be examined at a tax tribunal.
If you have already used a loan scheme, and is subject to the 2019 loan charge, you should read the updated guidance from HMRC. If you should need any further information please contact our office.
Written by the Tax Advice Network