Contractor loan charge

What is it?

From April 2019 individuals or businesses who have outstanding loans that exist as a result of a disguised remuneration tax avoidance scheme will need to pay income tax on the value of the outstanding loan. 

When does it start?

The outstanding loan charge arises on 5 April 2019 and employers who have used these arrangements will be required to notify HM Revenue & Customs of balances by 15 April 2019. Individuals who have outstanding loans must tell HMRC between 6 April 2019 and 30 September 2019 the amount of their outstanding loans.

What does it mean for me?

If you have received loan payments from your employer as part of your remuneration there will be an obligation for your employer to pay the contractor loan charge.

If the employer who you received the loan from still exists and is in the UK then it is their initial responsibility to pay the 2019 Loan Charge under PAYE legislation. The employer is then expected to pass this cost on to the individual. Whilst the initial liability falls to the employer, it can be passed to the individual beneficiary of the scheme by HMRC if unpaid. You should contact your employer to see how they intend on dealing with these matters and whether you will be required to make good the loan charge with the employer before 5 July 2019.

If the employer no longer exists or is outside the UK the initial liability falls on the individual and the loan charge should be reported on the individuals 2019 self-assessment tax return. This must be filed with HMRC by 1 October 2019.

This can prove to be a substantial tax charge as it will bring all of your accumulated income for a number of periods into the charge of tax in a single year thereby potentially resulting in higher tax rates applying to the income rather than spreading them over several years with the lower rates and allowances available.

It is however still possible to approach HM Revenue & Customs before 5 April 2019 to settle your tax affairs for the earlier years which is likely to result in lower tax charges as well as flexible payment terms. HMRC have now announced a spreading provision that will allow individual taxpayers with total income of no more than £50,000 in 2018/19 to spread the charge over 5 years.

How can Beatons Assist?

If you are affected you should seek to review your tax position as soon as possible. Beatons can help you in

  • Reviewing the potential tax cost of the contractor loan charge.
  • Calculating the tax due for the tax years to determine whether a settlement arrangement is beneficial.
  • Approaching HMRC and completing the Contractor loan settlement spreadsheet.
  • Negotiating payment terms with HM Revenue & Customs
  • Advising on accepted ongoing structures through which to provide services.

Please contact us for further advice.