Disguised remuneration: schemes claiming to avoid the loan charge (Spotlight 49)
HMRC is aware of schemes and arrangements that claim to avoid the 2019 loan charge on disguised remuneration. It's HMRC's view that these schemes do not work.
Overview
Spotlights 36 and 39 warned of a number of schemes and arrangements that claim to avoid the disguised remuneration loan charge. Despite this, promoters continue to market these types of schemes.
HMRC is aware of more arrangements currently being marketed that also claim to avoid the loan charge. It’s HMRC’s strong view that these schemes do not work and HMRC will tackle the promoters and users of these arrangements.
What to look out for
You should be aware of arrangements or schemes which may involve one or more of the following features:
- be marketed from an off-shore location such as Cyprus, Malta or Isle of Man, claiming to avoid the 5 April 2019 loan charge legislation
- claim that by entering the scheme, your disguised remuneration loans are paid off
- claim that the scheme is not disclosable under the Disclosure Of Tax Avoidance Schemes regime, and may have benefited from a QC opinion
- may have professional marketing material, including a website
Be aware of any arrangement that suggests a disguised remuneration loan can be ‘paid off’ or ‘repaid’ without a real economic consequence to the transaction – suggesting that the scheme user will not suffer any material financial cost (apart from fees).
Any scheme or arrangement that claims to avoid the loan charge is tax avoidance. If it looks too good to be true, it usually is.
Why you should not use these schemes
It’s HMRC’s view that the disguised remuneration loan charge legislation addresses attempts such as these to avoid the rules, as it disregards any non-monetary repayments. This means the outstanding loan balance will be subject to the charge. The legislation also excludes any repayments connected to a tax avoidance arrangement.
If you sign up to such schemes you’re likely to:
- pay administration and promoters fees that cannot be recovered
- remain liable for the loan charge
HMRC will pursue those who promote or enable tax avoidance arrangements devised to avoid the loan charge.
Misleading, or concealing information from HMRC may result in criminal prosecution.
What to do if you’re using this or similar arrangements
If you’re using one of these schemes or arrangements, HMRC strongly advises you to withdraw from it and settle your tax affairs.
If you do, you’ll:
- avoid the costs of investigation and litigation
- minimise interest and, where applicable, penalty charges on the tax you should have paid
Find out more about how to identify tax avoidance schemes.