Welsh taxes, Disguised remuneration settlements, and Interest rates

In our latest tax tips email for accountants we said:

Every week we endeavour to bring you three nuggets of new tax knowledge, or at least a timely reminder. This week we have details of two new taxes to be imposed in Wales from 1 April 2018, and new guidance from HMRC about settling disputes relating to disguised remuneration. We also have a reminder that the interest rates HMRC charges on late paid tax are increasing.

Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Disguised remuneration settlements

For years thousands of taxpayers took income in the form of loans from their employer, or through a less direct route such as an employee benefit trust (EBT). Many of those individuals did not understand the full implications of being taxed on the benefit of a loan, and were told the tax saving was totally legal.

Now the world is a different place, and HMRC views any “loan in place of salary” arrangement as disguised remuneration, and will seek to tax it as salary, whenever it was provided.

For arrangements entered into in 2011/12 and later years, taxpayers (or their employers) are encouraged to settle with HMRC to pay tax, NIC and interest, under ITEPA 2003, pt 7A. Where the employer has already settled the tax arising due the operation of an EBT scheme there should be no further tax or NI due from the employee.

In other cases where the loan remains outstanding at 5 April 2019, HMRC will impose a loan charge, as specified in schedules 11 and 12 of F(no.2) A 2017 (due to be passed today). This tax charge may well bankrupt some individuals, as the total of the outstanding loans will be treated as income in 2018/19. This means the majority of the loan will be taxed at higher rates than would have applied than if the loan had been taxed as salary at the time it was provided. There is no top-slicing relief mechanism. The amount of loan outstanding will be estimated by HMRC, which could be much higher than the actual amounts provided as loans.

To avoid the loan charge in 2019 the taxpayer (individual or employer) needs to settle with HMRC before 30 September 2018. HMRC has produced guidance notes for taxpayers, and separate guidance for tax agents, which explain how a settlement can be arrived at, including a payment plan.

The first step is to talk to your clients about this problem before they receive a nasty bill from HMRC. The next stage is to seek specialist advice, and our tax investigation experts will be happy to help. This is a very complex area, and the amounts of tax involved, even for one individual taxpayer, can be very large.

MTD – discuss and learn, Loans and disguised remuneration, NI numbers validation

Last week we examined how your accountancy practice may be affected by making tax digital, and how you can start to prepare. We also reviewed HMRC’s current position on loans which have been used to replace salary, which tend to be provided through employee benefit trusts (EBTs). Finally, we had news about valid national insurance numbers – a vital cog in the PAYE system.

This is an
extract from our topical tax tips newsletter dated 8 September
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Loans and disguised remuneration 
The Government is using all the means within its power to discourage the use of loans to replace remuneration, and in particular loans made by employee benefit trusts (EBTs). The law has been changed to ensure such loans don’t provide a taxadvantage, and settlement opportunities have been provided for existing schemes.

If your client was drawn into a using an EBT, but didn’t settle with HMRC before 31 July 2015, they still have a chance to make a settlement. However, the taxtreatment will be different for certain aspects, which HMRC helpfully summarised in one table. 

One of the lines within that table refers to investment growth on funds held within the EBT. HMRC’s view is that this investment growth must be taxed, but there is some transitional relief on who bears the tax. To access that transitional relief the taxpayer who set up the EBT (or similar trust) must apply to HMRC before 31 October 2016. 

Taxpayers who used contractor loan schemes can still settle with HMRC, and there doesn’t appear to be an end date to that settlement opportunity.

This is an
extract from our topical tax tips newsletter dated 8 September
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained the remainder of this item plus links to related source material and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>