On 24 July 2014, HMRC opened a new settlement opportunity for those who took part in loan contractor schemes during the tax years up to 5 April 2011 (prior to the disguised remuneration rules coming into force).
A loan contractor scheme is a tax avoidance arrangement whereby non-UK employers make payments of untaxed income by way of a loan rather than salary. Those who have used such a scheme may still have to pay income tax on the loan. The settlement opportunity offers those with tax to pay the chance to bring their tax affairs up-to-date, and they have until 9 January 2015 to do so. HMRC believes that around 16,000 individuals will be eligible to take up the opportunity, each owing an average of £11,000.
The case of Philip Boyle v HMRC (TC 03103 – November 2013) provided HMRC with a definitive decision regarding the validity of loan contractor schemes. The First Tier Tribunal dismissed all arguments put forward by the appellant and decided that the money paid as loans to Mr. Boyle was ‘in substance and reality income from his employment’ and therefore taxable. As with all disclosure and settlement opportunities offered by HMRC, there are certain qualifying conditions to meet before making use of the facility. Any individual who has used a contractor loan scheme may take up the opportunity unless:
- They are subject to HMRC’s criminal investigation policy.
- They are subject to the civil investigation of fraud procedures.
- They are a UK employer who has used an Employee Benefit Trust and should be using the employee benefit trusts settlement opportunity.
People affected by the Boyle decision should note that if they settle via this route they will reach a full and final settlement, without any recourse to reclaim the tax paid if the appeal against a similar case is successful. HMRC are keen to emphasise that those who don’t take up the opportunity will face continued legal action from HMRC, potentially resulting in additional tax charges and penalties, plus the litigation costs should they lose.
HMRC will also almost certainly issue people affected by the Boyle decision with a Follower Notice and Accelerated Payment Notice requiring that the tax due be paid within 90 days, even if the tax liability is disputed.
HMRC may have estimated the figures of income tax due and it is therefore essential that a thorough review of the relevant documents, including bank statements, is undertaken before any agreement is reached. HMRC will provide, on request, a copy of their calculation of the tax due before entering into an agreement.
The apparent benefits of the opportunity include the potential to settle on the basis of tax and interest only, with a penalty being unlikely, together with ‘time to pay’ arrangements for those unable to make payment in full. However, HMRC have not sought to impose penalties on similar cases already agreed and time to pay discussions are open to all, so how beneficial these terms truly are is questionable.
For further information regarding this settlement opportunity and any other disclosure or settlement facilities offered by HMRC, please call TaxDesk on 0845 4900509 and ask for John Hood or Isobel Clift.