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Loan Charge outrage picked up by the Mail Online

Always ready to pounce where they can sniff a scandal, the Mail Online has run a piece on the Loan Charge and the pain and misery it has caused thousands of contractors.

Those affected by the charge are facing huge backdated tax demands, after using so-called “disguised remuneration” schemes.

These arrangements worked by paying workers using tax-free loans from offshore trusts which never needed to be paid back. As of April 5th this year The Loan Charge made any outstanding loans taxable income.

Backlash against the Loan Charge

The Loan Charge has had a divisive effect in Westminster - a heated debate took place in the House of Commons back in April, with MPs clamouring at the perceived injustice to their constituents. But HMRC stuck to their guns and the Loan Charge went ahead, affecting up to 50,000 contractors.

Now the former Work and Pensions Secretary Iain Duncan Smith has called on Boris Johnson’s new government to suspend the charge and launch a review.

Much of the controversy around the charge is that it is retrospective - going back as far as 1999, so some tax demands have been six figure sums.

Another reason why feelings are running high is the fact that HMRC was fully aware of the loan schemes for two decades, but only took steps to legislate against them in 2017.

No doubt the impact is real and shocking - people have lost their homes and the charge has even been linked to a number of suicides.

Some Mail Online readers were less sympathetic however:
“People who try to avoid tax with dodgy schemes can’t complain when their chickens come home to roost”, was one waspish comment.

Clearly though, many didn’t know what they were involved with. The Mail Online interviewed a locum social worker who fell for a loan scheme promoter’s shiny sales pitch and assurances of HMRC compliance.

We have also heard of cases where the scheme provider’s fees were made to look like statutory deductions, making the recipient unaware that they were being paid by a loan.

Know what you are getting into

Despite the Loan Charge, and the publicity surrounding it, dodgy remuneration schemes are still on the rise, driven by factors including changes to IR35 and the surging gig economy. These include arrangements which claim to circumvent the Loan Charge by transferring ownership of shares in a Personal Service Company.

The Loan Charge has shown that pleading innocence will not wash with HMRC, so the important message is - know what you are getting into. Schemes posing as umbrella companies will promise you the earth, but beware; they could well end up costing you it.

The good Umbrella checklist

All legitimate umbrella companies must operate under the same rules laid down by HMRC - avoid any company that tries to tell you differently. There are no magic formulas and no loopholes.

Whether you are a contractor or an agency, here’s an essential checklist when you are shopping for a good umbrella company:

  • UK owned and registered with no registered with no off-shore affiliations
  • VAT-registered
  • Has over-arching employment contracts with its umbrella employees
  • Applies full PAYE tax and NIC (Employees and Employers)
  • Pays at least National Minimum Wage and only reimburses expenses above this
  • Pays statutory payments such as SSP where there is entitlement
  • Pays holiday pay
  • Offers a workplace pension

If you are in any doubt, the safest way is to stick to only companies which are accredited members of the Freelancer and Contractors Services Association. You can find a list of them here

FCSA Chief Executive, Julia Kermode had the following advice:

“We have seen a proliferation of schemes that aggressively target professional freelancers. They “work” by paying a small portion of earnings via PAYE and then disguising the remaining larger part of their income as something else, often an offshore loan. The unpaid tax and NICs soon adds up. HMRC will usually backdate any charge for unpaid taxes to the date that the person signed up to the scheme, and once fines and interest are added then the total tax bill will be extremely large. My advice to anyone is please don’t sign up to any of these schemes! Don’t believe anything that they tell you. Stick with a trusted umbrella employer that pays all of your remuneration via RTI payroll, and gives you all statutory rights and benefits of employment.”

Read the full Mail Online article on the Loan Charge here