On 5 April contractors paid by loans could face significant tax charges.
Many contractors have been engaged through structures whereby part of their remuneration was as a loan rather than PAYE. New legislation introduced by the UK Government means that for any loans which remain outstanding as at 5 April 2019, the amount of the loan will be subject to income tax as earnings in the current tax year.
As a result, many contractors will face significant tax liabilities where they have participated in this type of planning for a number of years. Those with the funds available may still be able to settle with HMRC ahead of the deadline date (although the official date by which HMRC were accepting settlement offers has passed, it may not be too late to reach an agreement), or alternatively the loan can be repaid.
Income tax would then be repayable when those funds are drawn down at a later date, but this could be done over a number of tax years rather than the full amount being taxed in the one year (and therefore more likely mostly at the higher/additional rate of tax).
However, many contractors will find themselves in a position where they are not able to do so, and it is highly unlikely that criticism of the fairness of the legislation in the House of Lords and elsewhere will result in any material changes.
Whilst HMRC will allow time to pay for those agreeing a settlement, it may still be that some simply are not able to meet their liabilities; in which case they should take professional advice on how best to approach the position. Whilst the three options of settlement, paying back the loan or paying the loan charge may not be available to all, simply doing nothing is not an option.
There are a number of personal debt solutions available, depending on your individual circumstances, and usually the earlier you seek professional advice the more options remain available.
If you are affected, speak to one of our tax or personal insolvency advisors to make a plan of action for your individual circumstances.
Craig Coyle, Tax Partner
0141 886 6644
Blair Milne, Restructuring & Insolvency Partner
0141 886 6644
The information in this article should not be regarded as financial advice. This is based on our understanding in February 2019. Laws and tax rules may change in the future.