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If it looks like a duck and walks like a duck, it probably is a duck

It would appear that the well-known idiom above applies to the various loan schemes that have proliferated in contractor forums for a long while now. When solution providers get Quality Control (QC) to approve a scheme, which effectively converts income earned into some type of loan that never needs to be repaid, then – to paraphrase the idiom – “if it looks like income and is spent like income, it probably is income”.

HMRC has certainly taken this view of late, and is aggressively pursuing contractors who have used loan schemes. Many have sadly lost their homes to finance the back taxes.

Our view is to use good tax planning to achieve the best possible tax results and not to chase an impossible dream.

HMRC has said that it is fully aware of the existence of claims to avoid the 2019 loan charge on disguised remuneration being made by promoters of tax avoidance schemes. In fact, the tax authority has even issued a statement warning that such schemes simply do not work.

In August, HMRC published what it refers to as ‘Spotlight 39’, which explains the tax authority’s rationale:

‘Re-describing’ loans are supposed to work as follows:

Those who involve themselves in tax avoidance schemes which incorporate the use of loans are reportedly being advised that they can sign documents which claim that any sums they have received from their disguised remuneration scheme under loan arrangements are not loans at all.

These sums of money are instead said to be merely held by them in a ‘fiduciary capacity’.

The idea is that, in short, if an individual acts in a ‘fiduciary capacity’, they hold the money or assets for the benefit of someone else as opposed to for the benefit of themselves.

HMRC’s view: the schemes ought to be avoided at all costs

HMRC has said that, in effect, the act of ‘renaming’ something now does not change what it used to be, or what happened in the past. In the spirit of the aforementioned duck idiom, attempting to describe what is clearly a loan as being something else will not change the fact that it is still a loan.

This means that the loan charge involved will apply to more than just loans, including any form of credit or other right to a payment regardless of what the loan or product itself has been called.

Individuals have been warned that anyone adopting the ‘renaming’ approach and subsequently choosing not to clearly lay out the loan charge on their tax return is likely to face a significant penalty in addition to the initial tax charge.

As is to be expected, deliberately misleading – or concealing information from – the tax authority could also lead to criminal prosecution in more serious cases.

What should existing scheme users do?

Existing scheme users are advised to contact HMRC in order to settle their liability, and to make a repayment of the loan balance in order to avoid the loan charge in 2019.

Anyone who is not already in contact with HMRC with regards to their use of a disguised remuneration scheme, should email the Revenue at: exitsteam.counteravoidance@hmrc.gsi.gov.uk.

Further information on how to identify tax avoidance schemes can be found by clicking here.


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