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Disguised remuneration schemes are complex tax arrangements that have landed many individuals and businesses in trouble with HMRC. These schemes are often marketed as legitimate ways to reduce tax liabilities but have been targeted by HMRC as tax avoidance mechanisms. If you have been involved in a disguised remuneration scheme, it’s crucial to understand your position and take corrective action to avoid significant penalties.
At Tax Dispute Experts, we help individuals and businesses who need to correct their affairs or make a disclosure regarding disguised remuneration schemes. Our experienced team can support you throughout the process, ensuring compliance with HMRC's regulations while minimising potential penalties.
What is Disguised Remuneration?
Disguised remuneration refers to tax schemes where earnings are paid in forms that are intended to reduce tax liabilities, such as loans or other non-standard payments. These payments are usually designed to avoid Income Tax and National Insurance contributions, but HMRC considers them as attempts to disguise actual remuneration.
Some common types of disguised remuneration schemes include:
Employee Benefit Trusts (EBTs)
Contractor Loan Schemes
Employer-Financed Retirement Benefits Schemes (EFRBS)
Umbrella Companies (in certain cases)
Though these schemes may have been marketed as legal at the time, HMRC has cracked down heavily on them in recent years, introducing legislation such as the 2019 Loan Charge to recoup unpaid taxes.
Contractor Loans: A Form of Disguised Remuneration
Contractor loans are one of the most common forms of disguised remuneration schemes. These schemes are often marketed to contractors, freelancers, and self-employed individuals as a way to reduce their tax liabilities. The individual would receive their income as a loan rather than a salary, with the promise that the loan would never need to be repaid.
Contractor loan schemes are particularly appealing to contractors because:
They appear to reduce the amount of Income Tax and National Insurance owed.
The "loans" provided are typically structured to be non-taxable under the scheme, leaving contractors with a larger portion of their earnings.
However, HMRC considers these loans as income, meaning they are subject to full taxation. Individuals who have used contractor loan schemes could face significant tax liabilities and penalties, especially in light of the Loan Charge.
Umbrella Companies and Disguised Remuneration
Umbrella companies are a popular way for contractors and freelancers to manage their pay and taxes, but not all umbrella companies operate transparently. In some cases, umbrella companies have been used as part of disguised remuneration schemes, where they pay workers through loans or other non-standard methods to reduce tax.
Here’s what you need to watch out for with umbrella companies:
If your umbrella company is paying you via loans, shares, or similar non-taxable benefits, it could be participating in a disguised remuneration scheme.
Some umbrella companies charge high fees but promise greater take-home pay through tax avoidance schemes.
If your umbrella company promotes arrangements that seem "too good to be true," like dramatically reducing your tax liabilities without clear legal justification, it could be a red flag.
HMRC has been targeting umbrella companies involved in disguised remuneration, so if you believe your umbrella company is part of such a scheme, get in touch today.
Why Is HMRC Targeting Disguised Remuneration Schemes
HMRC is targeting disguised remuneration schemes to close the tax gap—the difference between the tax that should be collected and what is actually paid. These schemes, which allow individuals and businesses to avoid Income Tax and National Insurance, have led to billions in lost public revenue.
By cracking down on these arrangements, HMRC aims to ensure fairness in the tax system, where everyone pays their fair share. Disguised remuneration schemes undermine this by offering aggressive tax avoidance options. HMRC's enforcement efforts, including the Loan Charge, are designed to recover unpaid taxes and discourage the use of such schemes in the future.
What Should You Do if You Have Used a Disguised Remuneration Scheme?
If you’ve been involved in a disguised remuneration scheme, it’s essential to act quickly to correct your affairs and avoid further penalties. With the help of Tax Dispute Experts, you should:
Review Your Situation: We will conduct a thorough review of your involvement in any disguised remuneration schemes, helping you understand the potential tax liabilities and risks.
Make a Voluntary Disclosure: Voluntarily disclosing your involvement in these schemes to HMRC can reduce penalties and demonstrate a proactive approach to compliance. We’ll guide you through the HMRC disclosure process, ensuring all necessary information is submitted correctly.
Negotiate with HMRC: HMRC’s settlement opportunities may provide a way to resolve your disguised remuneration tax liabilities without the full impact of the Loan Charge. We’ll liaise with HMRC on your behalf to negotiate a fair settlement, minimising the financial and legal risks.
Correct Past Tax Returns: We can assist you in amending past tax returns to accurately reflect your earnings, loans, or benefits under the disguised remuneration scheme, ensuring full compliance with HMRC’s rules.
The Risks of Not Taking Action
Ignoring your involvement in a disguised remuneration scheme can lead to significant financial and legal consequences. HMRC has stepped up its enforcement efforts, and failure to address your tax liabilities could result in:
Large financial penalties
Interest on unpaid taxes
Possible legal action
Restriction from certain financial services
By addressing the issue promptly, you can avoid the worst-case scenario and protect your financial future.
How Tax Dispute Experts Can Help
At Tax Dispute Experts, we offer tailored and professional support for individuals and businesses needing to correct their tax affairs. Our team of tax dispute specialists will:
Help you understand your tax liabilities related to disguised remuneration
Guide you through the disclosure and settlement process with HMRC
Ensure that your case is handled efficiently, with minimal stress
Don’t wait for HMRC to come to you. Take control of your situation today by contacting our team for a confidential consultation.
FAQs
What is the Loan Charge?
The Loan Charge is a tax introduced in 2019 to target historic use of disguised remuneration schemes. It applies to loans made through such schemes from as far back as 1999 that have not been repaid by 5 April 2019.
Can I settle with HMRC before facing penalties?
Yes. HMRC offers settlement opportunities for individuals and businesses who wish to resolve their tax liabilities from using disguised remuneration schemes. Settling early can reduce the risk of penalties and additional interest.
How do I know if I’m affected by the Loan Charge?
If you received payments in the form of loans or other benefits from a disguised remuneration scheme, you may be affected. Our experts can review your situation and advise you on whether the Loan Charge applies.
What is the difference between tax avoidance and tax evasion?
Tax avoidance refers to legally using tax reliefs and allowances to reduce your tax liabilities. Disguised remuneration schemes fall under tax avoidance but are viewed by HMRC as abusive schemes that break the spirit of the law. Tax evasion, on the other hand, is illegal and involves deliberately misrepresenting or hiding income to avoid paying tax.
What are the penalties for using a disguised remuneration scheme?
If you’ve used a disguised remuneration scheme and have not corrected your tax affairs, you may face penalties, interest on unpaid tax, and potential legal action. Penalties can vary but are often based on the level of non-compliance. Proactively disclosing your involvement can help reduce these penalties.
Is it too late to settle with HMRC?
No, it is not too late to settle. HMRC encourages individuals and businesses to come forward voluntarily to settle their tax affairs. Doing so may help reduce penalties and the stress of facing legal action. Tax Dispute Experts can help you navigate the settlement process.
I used an umbrella company; how do I know if it was part of a disguised remuneration scheme?
If your umbrella company paid you in loans, shares, or other non-standard payments instead of a regular salary, it could be involved in a disguised remuneration scheme. If you’re unsure, we can review your payment arrangements and determine whether they fall under HMRC’s definition of disguised remuneration.
Can I be held responsible if I didn’t know I was in a disguised remuneration scheme?
Even if you were unaware, you could still be liable for unpaid tax and penalties. HMRC expects individuals to take reasonable care when managing their tax affairs. If you were unknowingly involved in such a scheme, disclosing this to HMRC early can mitigate potential penalties.
What should I do if I receive an Accelerated Payment Notice (APN)?
An Accelerated Payment Notice (APN) demands payment of disputed tax upfront before the issue is fully resolved. If you receive an APN related to a disguised remuneration scheme, you must pay the amount within 90 days or challenge it within the specified time. Our team can help you understand your options and guide you through the APN process.
Can contractors be targeted by HMRC for disguised remuneration?
Yes, contractors, particularly those involved in contractor loan schemes, have been a significant target of HMRC’s enforcement. These schemes are often marketed to contractors as a way to reduce taxes, but HMRC views them as disguised remuneration and will seek to recover unpaid tax.
Are directors and employees also at risk?
Yes, directors and employees who have used Employee Benefit Trusts (EBTs), Employer-Financed Retirement Benefit Schemes (EFRBS), or other disguised remuneration arrangements may also be at risk. HMRC is actively targeting all forms of tax avoidance linked to disguised remuneration.
How can I ensure my tax affairs are compliant moving forward?
The best way to ensure your tax affairs are compliant is to seek professional advice, particularly if you’ve been involved in a disguised remuneration scheme in the past. Our team at Tax Dispute Experts can help you review your tax arrangements and ensure that you comply with HMRC’s rules.
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