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Article:

Tax avoidance: Disguised Remuneration – yet more uncertainty

20 September 2019

Just when the tax profession felt it was reasonably safe to be able to give clear advice to clients who participated disguised remuneration tax planning arrangements, Boris Johnson during Prime Minister’s questions on 4 September 2019 announced a review would be undertaken. Aymas Morse, former Chief Executive of the National Audit Office is undertaking the review which is to consider whether the loan charge is an appropriate method of dealing with disguised remuneration arrangements used, in HMRC’s view, to avoid paying tax.

The review is a quick one – it is scheduled to conclude by mid November 2019 in time to allow for submission of Self-Assessment tax returns before the due date of 31 January 2020. Whilst HMRC has said it will update its guidance once the outcome of the review is known, clients have various things to consider when deciding what actions they need to undertake.

There is a statutory requirement to notify HMRC before 1 October 2019 of the amount of any outstanding loans from arrangements such as Employee Benefit Trusts as at 5 April 2019. Failure to do so can lead to penalties and this remains the case regardless of the existence of the review discussed above. The only exception to this is if a client has entered into settlement discussions with HMRC and has provided it with full details of the loans for the purposes of those settlement discussions.

Following the announcement of the loan charge review, HRMC has stated that those clients who have already settled and for example have a payment plan in place, should continue with the terms of that plan. For those clients with ongoing settlement discussions have two options – to proceed with settlement, or wait for the outcome of the loan charge review. It has reiterated that any client who has not entered into settlement discussions still has the reporting requirements discussed above. It has also reiterated it will continue with its compliance activity and if necessary litigation pending the outcome of the loan charge review.

For completeness, the tax due under the loan charge is payable with the normal self-assessment liabilities on 31 January 2020 – assuming of course that the loan charge survives the review.

Whether it does, of course, remains to be seen. It is interesting to note that the Terms of Reference specifically asks “whether the loan charge as it applies to individuals who have directly entered into disguised remuneration schemes is an appropriate response to the tax avoidance behaviour in question”. This suggest to us that it is only from the perspective of freelance contractors not employers and directors/shareholders that the review is to be considered. If so this is clearly in response to the campaign waged on behalf of freelance contractors. We note that the estimated tax due from the loan charge if £3.2bn and do not imagine the Treasury would readily agree to waive such a significant amount!

Watch this space!