HMRC has recently published Spotlight 49, ‘Disguised Remuneration: schemes claiming to avoid the loan charge’.
Despite previous warnings contained in HMRC Spotlights 36 and 39, promoters are persisting in continuing to market schemes and arrangements that claim to avoid the Disguised Remuneration (DR) loan charge that comes into effect in April. Not surprisingly, HMRC strongly opposes these schemes as they believe they are ineffective and have warned that they will deal with both the promoters and users of these schemes.
Needless to say, individuals should be wary of such schemes and arrangements and in particular where they involve one or more of the following components:
- marketed from an off-shore location such as Cyprus, Malta or Isle of Man, claiming to avoid the 2019 DR loan charge legislation;
- claims that participation in the scheme ensures DR loans are paid off;
- claims that information about the scheme does not need to be disclosed to HMRC under the Disclosure Of Tax Avoidance Schemes (DOTAS) regime and is backed by a QC opinion; and
- has all the bells and whistles of professional marketing material, including a website.
Any arrangement that claims that the DR loan charge can be discharged without a real economic consequence, i.e. the participator will not experience any material financial loss other than scheme promoter fees, should be eyed with suspicion.
As far as HMRC is concerned these schemes are nothing more than tax avoidance arrangements and should be avoided like the plague. To repeat the old adage, if it looks too good to be true, then it usually is.
Out of the frying pan into the fire
Any outstanding loans as at 5th April 2019 will be subject to the DR loan charge. Legislation excludes any non-monetary repayments and also any repayments connected to a tax avoidance arrangement. So, any person entering into one of these schemes will not only have to shell out non-recoverable administration and promoters fees but still end up having to pay the original loan charge. Double whammy!
Get out now
HMRC want anyone involved in one of these schemes or arrangements to make a swift exit and settle their affairs with the department, thereby cutting their losses.
With any tax avoidance scheme, extreme care should be taken before rushing in. Scheme promoters may instil confidence in users and potential users that their arrangements are watertight but independent third party advice should always be sought. Such professional advice does not come cheap but it may well save an individual money - and an awful lot of stress and heartache - in the long run.
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