The Government has today published a report on ‘disguised remuneration schemes’ and how it plans to tackle these arrangements.
HM Treasury said the 49-page document will “detail the scale and nature of tax avoidance” through such schemes.
Disguised remuneration schemes usually involve workers being paid through loans – most often through an offshore trust in a low or no tax jurisdiction – which are never to be repaid.
As the nature of the payment is defined as a loan, no income tax and national insurance is paid.
According to the report, around 50,000 people are involved in a disguised remuneration scheme in the UK, potentially costing the Treasury around £3.2 billion over the next five years if it does not intervene. It added that 75 per cent of this income will come from employers rather than individuals.
The Government hopes to combat these arrangements with the launch of the loan charge. Taking effect on 05 April 2019, the loan charge works by adding together all outstanding loans and taxing them as income in one year.
An impact assessment of the loan charge suggests some individuals may face large tax bills in excess of tens of thousands of pounds. For example, a worker who has routed £100,000 through a disguised remuneration scheme may have avoided some £40,000 in income tax and national insurance contributions.
HMRC said it will support anyone who comes into the scope of the loan charge and treat each case “sympathetically and appropriately”.
Commenting on the report, Financial Secretary to the Treasury Mel Stride said: “We introduced measures to tackle disguised remuneration schemes, an aggressive and contrived form of tax avoidance which cost the taxpayer hundreds of millions of pounds a year, depriving our vital public services of funding.
“99.8 per cent of people in the UK go nowhere near these sorts of schemes, and we know that many contractors looked at these arrangements, were appalled and ran a mile.
“The report we are publishing today explains the background to our action, but crucially also sets out the work we are doing to support vulnerable customers, including those who face the loan charge but also the many others that HMRC deals within its everyday work.”
To read the report, entitled Section 95 of the Finance Act 2019: report on time limits and the charge on disguised remuneration loans, please click here.
If you feel you may be affected by the loan charge or have any questions regarding alternative remuneration schemes, please get in touch.