Disguised remuneration: contractor loans settlements and obtaining a deed of release (Spotlight 48)
HMRC is aware of scheme users being told we will demand a deed of release before agreeing a settlement of your disguised remuneration liabilities.
Disguised remuneration schemes are arrangements that pay loans instead of normal salary to avoid:
- Income Tax
- National Insurance contributions
We introduced a charge on outstanding disguised remuneration loans (the 2019 loan charge) to deal with the use of these avoidance schemes.
HMRC settlement terms were published in November 2017 to encourage users of these schemes to settle their tax affairs before the loan charge comes in.
Overview
HMRC is aware that wording about Inheritance Tax (IHT) in the settlement pack we ask scheme users to complete is being misunderstood. This especially applies where contractor loans schemes have been used.
We understand scheme users are being told that HMRC will demand a deed of release or exclusion, or both, before agreeing a settlement of your disguised remuneration liabilities and in some cases, being charged for these deeds.
HMRC will not demand a deed of release or exclusion, or both, before we agree a settlement.
What advisers are asking scheme users
Some advisers are using the wording on IHT in the settlement pack to ask scheme users to pay a fee or a percentage of the loan amount to secure a deed of release or exclusion, or both.
Any payment will not reduce the amount of earnings or income to be included in the settlement.
If a settlement is not reached and the loan charge becomes payable, we may accept a payment made to secure a deed of release or exclusion, as reducing the outstanding loan balance if it:
- represents a genuine repayment of the loan
- is paid in cash
Any flat fee paid is unlikely to be deductible in reaching the settlement amount due.
HMRC has now changed the IHT wording of the settlement pack to explain. It now reads:
‘I wish to have IHT included in the settlement on the basis of the loans being written off or released within 30 days of a settlement being agreed. No further evidence will be required by HMRC of this. If the loans are not written off or released within 30 days of a settlement being agreed, I will contact HMRC so that the IHT position can be reviewed.’
What to do when you settle
You only need to contact HMRC if you do not take the required action, as explained in the changed wording in the settlement pack. HMRC will consider if there needs to be any change of the IHT figure, where appropriate.
You’ll need to make sure the debt is legally released and it’s still possible that trustees or other people could require deeds. However, there is no requirement for HMRC to see such a deed when we conclude a settlement.
How to settle before the loan charge arises
If you’re using or have used disguised remuneration tax avoidance arrangements, you should come forward and contact HMRC before the loan charge comes into effect on 5 April 2019.
HMRC understands that for some people who have used these schemes, paying the tax due will have a significant impact. If you have problems paying what you owe, flexible payment arrangements are available.
Find out more about:
- what you need to do to settle your tax affairs and how to contact us
- how to identify tax avoidance schemes