TaxSep 18 2017

Hole in HMRC’s disguised pay tax grab uncovered

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Hole in HMRC’s disguised pay tax grab uncovered

PAYE charges on outstanding loans is the missing piece in HM Revenue & Custom’s disguised remuneration proposals, according to industry experts.

Leading audit, tax and consulting services provider, RSM, has claimed the key weapon in the government’s latest attack on employee benefit trust and other arrangements is the PAYE charge on loans outstanding on 5 April 2019.

This is regardless of when the loan was taken out. 

Andrew Hubbard, tax consultant at RSM, said: “In many cases this could prove difficult - particularly when employees left employment many years ago or where the trustees are bound by duties of confidentiality, which may not permit them to provide the information. 

“But one important piece of the jigsaw is still missing. When the loan charge was first announced HMRC said that in some cases responsibility for payment of the tax may shift from the employer to the employee. 

“We still do not know how this shift will work and when it will be invoked. It is leading to considerable uncertainty and we urge the HMRC to find the missing pieces of the jigsaw as soon as possible.”

The issue for the employee is that this is adviser led - they are not the ones who came up with this and might now be unable to reclaim tax paid even if the loan is repaid in full.Kusal Ariyawansa

This comes after the government recently published its ‘Draft legislation: tackling disguised remuneration - avoidance schemes’, which outlined the requirements on trustees and employees to report outstanding loan balances to the employer and to HMRC.

The document highlighted the government’s changes to tackle disguised remuneration tax avoidance schemes since its Spring Budget in 2017.

This includes the close companies’ gateway and new information requirements for the loan charge.

Commenting on the complexity of the situation, Kusal Ariyawansa, chartered financial planner at Manchester-based Appleton Gerrard, said: “This helped people access income at reduced tax levels whilst avoiding national insurance contributions.

“These loans were usually interest-free and just left outstanding. This was rightly classified as disguised remuneration by HMRC.

“The issue for the employee is that this is adviser led - they are not the ones who came up with this and might now be unable to reclaim tax paid even if the loan is repaid in full.

“Yes, the trustees have a duty of confidentiality - they should also seek compensation from the advisers for losses due to advice that went against the spirit of the law.”