Contractors and freelance workers have until the end of September to let HMRC know if they have been using any tax avoidance schemes. If they don’t, they are set to face high loan charges.

HMRC’s order applies to anyone who it deems to have benefited from “disguised remuneration” and similar arrangements going back to 1999. Between 50,000 to 100,000 workers are thought to be affected.

These complex tax avoidance arrangements were popular in the early 2000s and usually involved loans and offshore trusts. At the time, they were widely accepted to be a legitimate way to seek safety from IR35.

Professional Indemnity Insurance - From £144

However, HMRC has been closing these technical loopholes since 2010. Users now face demands for tax repayment. They will also be subject to a loan charge unless they settle their affairs with the tax authority.

The original deadline to declare was 31 May, but it has since been extended to 30 September.

Six-figure tax bills and bankruptcy

The so-called 2019 loan charge is not without controversy. Some contractors face six-figure tax bills, which they are unable to repay. Meanwhile experts are calling it immoral and unfair.

Stephen Lloyd MP has said that thousands of independent nurses, doctors, teachers, contractors and freelancers “could be made bankrupt because of the retrospective tax measures.”

“Hard-working contractors are now being hounded by HMRC with Advanced Payment Notices without any right of independent appeal,” the Lib Dem Work and Pensions spokesperson said in a public letter. “People who acted in good faith are being punished for the government’s own imprecise legislation, which enabled agencies and tax advisers to take advantage of loopholes and flourish off the backs of honest contractors. I have been contacted by many people from across the country affected by this change of government policy. They are frightened that they are going to lose their homes and livelihoods.”

Under the current arrangement, self-employed workers who have an outstanding loan must repay it or settle with HMRC. Otherwise they will need to pay a tax charge too. This charge applies to any outstanding loan balance which has built up over the last 20 years.

Anybody who believes they have benefited from a complex tax avoidance scheme should discuss their options with their advisor.

IR35 Tax Investigation & Liabilities Insurance - From £120.00