The government has finally placed a date to clampdown on a scheme that allows individuals to avoid large sums of tax and National Insurance contributions.
Disguised remuneration schemes see directors and other employees given tax-free loans, usually through offshore trusts, instead of being paid a salary that would be taxed as normal.
These loans can be arranged so they are never repaid, meaning no income tax and National Insurance is owed. The closure of the loophole was supposed to come in last year but is now coming into force on 6 April 2018.
In September the government published its ‘Draft legislation: tackling disguised remuneration - avoidance schemes’, which outlined the requirements on trustees and employees to report outstanding loan balances to the employer and to HMRC.
Shortly after in the Budget, Chancellor Philip Hammond confirmed that the Finance Bill 2017-18 will introduce the close companies’ gateway to tackle disguised remuneration avoidance schemes. All employees, and self-employed individuals, who have received a disguised remuneration loan, will be required to provide details to HMRC by 1 October 2019. This gives HMRC the power to ensure the loan charge is complied with.
Affected employees will be chargeable at their marginal tax rates in 2018-19 on the value of all outstanding loans.
HMRC already has powers to levy a charge on loans made after 5 April 1999 through disguised remuneration schemes that remain outstanding on 5 April 2019.
Paula Steele, managing partner at John Lamb Financial Planning, says: “This is an important step to ensure these loans are not used for tax avoidance. There have been reports of some workers being misled into the schemes, however. For these people it’s important HMRC takes a flexible approach where repayments are beyond their means.”
Employee benefits featured further in the Chancellor’s budget. In-keeping with the government’s focus on electric vehicles, employees that charge their electric vehicles at work will not incur a benefit-in-kind charge on the electricity used.
The move will come into effect from April 2018. However, those using diesel cars will be stung with a higher benefit in kind bill. The existing company car tax diesel supplement will increase from 3% to 4% in April 2018. Meanwhile, the fuel benefit charge and the van benefit charge for company cars will both increase in line with the retail prices index (RPI) from 6 April 2018.
Paula Steele added: “It’s important to keep up with benefit in kind payments to ensure clients know exactly what tax bills they face.”