HMRC has recently issued updated Guidance regarding the settlement terms for Contractors wishing to settle planning arrangements with HMRC.
Is now the time to start thinking about a settlement? The loan charge legislation in April 2019 may focus minds?
Firstly, who is a Contractor?
HMRC define a contractor as someone who provides services to clients that don’t directly engage them.
Contractors may provide their services through an umbrella company, agency, partnership or their own company.
Contractors, for the purposes of the Guidance, can be either employed or self-employed.
Settlement is on a net basis.
Income Tax will be applied on all loans. HMRC refer to loans as disguised remuneration loans or DR loans.
Fees (scheme expenses) will not be taxed as part of income or profits on the net basis.
Income Tax is due for years in which loans were paid, or other payments were made. HMRC can assess where an assessment is already in place or it is still in time to raise one. Tax is calculated at the rates and bands applicable in the year of the loan or payment.
The 2019 loan charge will apply to loans not taxed above unless the Contractor makes Voluntary Restitution. Again taxes will be evaluated at the rates and bands applicable in the year the loan or payment was made.
Late payment interest is due for years where HMRC can or have assessed. No late payment interest will be payable on Voluntary Restitution.
HMRC have intimated penalties may be charged albeit none have yet been seen by the author. Penalties do not apply to Voluntary Restitution.
Employed contractors will not have to pay NICs personally. However, HMRC has commented that it may still pursue the employer or other liable party.
Self-employed contractors will need to pay Class 2 and Class 4 NICs as appropriate on all DR loans or other payments.
Benefit in kind legislation
The settlement can be reduced by any Income Tax the contractor has paid because they declared a benefit in kind.
Albeit such a reduction is only available if a tax year is in time to be amended or alternatively an overpayment claim can be made.
Anyone seeking to exit any form of tax avoidance contact me at firstname.lastname@example.org, or Paul at email@example.com, to explore their options.