HMRC and the Loan Charge

HMRC has for some time been applying pressure on directors who used ‘disguised remuneration’ tax avoidance schemes to settle HMRC’s claims for income tax and National Insurance contributions (‘NIC’) on the amounts put through such schemes, or face an additional charge, known as the Loan Charge, on any loans still outstanding through these schemes as at 5 April 2019.  HMRC has been pursuing directors who used these schemes following a ruling of the Supreme Court in July 2017, which decided that payments made by Rangers Football Club to players and executives at the club through Employee Benefit Trusts should be treated as earnings, and therefore subject to income tax and NIC.

While HMRC has been attempting to pressure directors to settle personally, it is usually their company, as the employer, that is liable for the Loan Charge in the first instance, like any standard obligation to pay over income tax and NIC when an employee is paid on payroll. The threat made by HMRC is that they will use existing tax legislation to transfer the liability to the directors personally, but this is not as straightforward as HMRC are seeming to portray.

Much adverse publicity has followed, and the Loan Charge Action Group has been formed to raise awareness of what they consider to be a retrospective tax charge, applying as it does to loans going back as far as 20 years. HMRC has recently referred four incidents involving the suicide of an individual related to the Loan Charge to the Independent Office for Police Conduct.

In September 2019 the government announced that it has commissioned an independent review of the Loan Charge, but whilst this review is ongoing the Loan Charge remains in force. It is not yet known when this review will be concluded and the outcome published.

If you are aware of any companies or individuals struggling with the prospect of these liabilities, do not hesitate to contact us.