Disguised Remuneration Schemes costing 25,500 taxpayers

Disguised Remuneration Schemes costing 25,500 taxpayers

Pinsent Masons has revealed that thousands of taxpayers must settle with HMRC before April 2019 in order to avoid tax charges

April 2019 is an important deadline set by the HMRC for taxpayers to settle over Disguised Remuneration Schemes. International law firm, Pinsent Masons, has revealed that 25,500 taxpayers have now registered their interest to settle.

In particular, “IT consultants, engineers, teachers, and dentists [are] all affected by [the] new tax change,” the firm stated.

Disguised Remuneration Schemes have meant that these taxpayers are having to agree a repayment schedule for income tax with HMRC, since they have previously not paid it. These schemes have been heavily marketed to the likes of self-employed contractors.

However, the people this will affect only have until 5 April 2019 until HMRC introduces a new tax charge on any remaining outstanding loans made through Disguised Remuneration Schemes.

Pinsent Masons said: “The charge essentially presents taxpayers with a very substantial tax bill based on the outstanding loans.”

It is therefore essential that those affected taxpayers who have not yet settled consider their circumstances, and reach out to HMRC in order to settle before the set date in a few months time.

“HMRC estimates that 50,000 taxpayers will be affected by the new tax charge, many of which are likely to be IT consultants, management consultants, and financial advisers, as well as engineers, supply teachers, and dentists,” the firm continued.

A Disguised Remuneration Scheme is when an employer decides to pay their employee through the likes of a third-party company. Instead of paying them a traditional salary – as this attracts income tax and NICs – employers loan money with terms that mean that it is unlikely to ever be repaid.

In many cases, Pinsent Masons has highlighted that a large number of these employees enter into such agreements in “good faith”, thus assuming that they are entering into a “legitimate arrangement”.

It is important to note that the House of Lords has warned that this new tax charge that has been announced by HMRC is particularly unfair on lower and middle-income taxpayers; they now face charges on loans received since all the way back in April 1999.

Steven Porter, partner at Pinsent Masons, concluded: “Taxpayers are scrambling to settle with the HMRC ahead of April 2019, as failure to do so could be hugely costly, depending on their circumstances.

“Settling with HMRC allows taxpayers to avoid the tax charge and make settlement payments over extended time periods. As HMRC has recently been criticised for being too harsh by a House of Lords Committee, we would expect them to take a more lenient approach in agreements.

“In instances where taxpayers are litigating over payments received through these schemes, HMRC has, in some cases, not been allowing them to settle on terms consistent with the published terms. Treading carefully is so important.

HMRC is coming down like a ton of bricks on individual taxpayers, many of whom entered into these schemes in good faith, but there seems to be little focus on the promoters of these schemes.”

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