Warning! Disguised Remuneration Crackdown

Urgent news for employees paid via ‘loans’

HMRC is cracking down on the use of disguised remuneration and contractor loans. This will affect all workers, regardless of their salary levels who are paid at least partly, by loans, instead of through the normal PAYE system. If this is you, the government may well be after you for payments of income tax and National Insurance Contributions going back some years.

What exactly is ‘Disguised Remuneration’?

The conventional way of being paid is via PAYE (Pay As You Earn). Your employer pays you (usually monthly) and deducts your Tax, National Insurance and maybe other deductions, such as student loan repayments, before paying you nett pay into your bank account.

Disguised Remuneration works like this. You might be paid a small part of your monthly wage via PAYE. The remainder would be paid as a ‘loan’ from a third (sometimes off-shore) company. You would never be expected to pay the loan back and, being a loan, you wouldn’t pay Tax or National Insurance. Neither would your employer be paying their share of National Insurance.

So – everybody wins … or do they?

Who is paid in this way?

It can be high earners. Or it can be relatively low-paid workers – typically nurses.

So what’s the problem?

From its very beginnings, we’ve advised against these schemes. From day one, our Tax Experts believed that the scheme was flawed and could lead to unfortunate consequences. It seems that we were right. The government have long declared that it wouldn’t tolerate these schemes – it sees them as an abuse of the system by using off-shore trusts and is determined to claim back unpaid taxes.

Where have the ‘promoters’ of these schemes been going wrong?

All along, the HMRC has been warning that companies running these schemes should have notified HMRC that they were doing so. This process is called DOTAS – Disclosure of Tax Avoidance Schemes. Companies operating the schemes use DOTAS to notify HMRC about what they’re doing. HMRC, for their part, then monitor the loan payments and make a judgement as to whether they’re legitimate, or whether Income Tax and National Insurance should be paid.

And the government’s view is…?

HMRC themselves say – ‘The loans are provided on terms that mean they are not repaid in practice, and the amounts paid by way of a loan are no different to normal income and are – and have always been – taxable.

‘These disguised remuneration arrangements claimed to offer a much lower tax charge than if the scheme user had been paid all of their income as a salary.’

So - what happens next?

Well, HMRC has stated clearly that they’ll be taking swift action, not only to put an end to these schemes but also to reclaim unpaid Tax and National Insurance Contributions. The new, strict approach was launched on April 5 th this year. There has been strong opposition in parliament from MPs who claim that it’s harsh and unfair to apply the new penalties retrospectively. To date, HMRC and its boss, the Chancellor have turned a deaf ear to these protests.

An HMRC spokesperson said: ‘In the interests of the vast majority of taxpayers who play by the rules, we challenge tax avoidance whenever it occurs and will vigorously defend this action.’

What should I do?

If you’ve been paid in the past via ‘disguised remuneration’ and you reached a settlement with HMRC before September 2018’s deadline, then you’ll be fine. But, if you think you might be subject to retrospective payments, don’t bury your head in the sand, call us. We’re experts in the field. Why not give us a call? We’d love the chance to guide you through this potentially complex issue. We are, after all – here to help.

We’re here to help.


This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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