2019 tax charge retro law(17 Posts)
Hi - new to Mumsnet but very long time lurker, so please go easy.
Is anyone aware of the new tax charge to be introduced in 2019 for contractors/freelancers? I've just been made aware of it and am panicking like mad.
Can anyone knowledgeable give me the lowdown on it?
This might be better in legal matters as there are some very knowledgeable people there.
I am also interested in finding out about this as it will affect DH. From what I can gather contractors will be taxed at source meaning their hourly rate will in effect decrease. I'm pretty clueless other than that so watching with interest.
Hi IamCrazy - I think that's changes to IR5 legislation. This one (as far as I can tell) is a retrospective law designed to tax contractors who entered into umbrella arrangements and were paid in loans. If the loans are outstanding in April 2019 then those who used them will be retrospectively taxed on it. I can't quite get my head around retro legislation, surely it cannot be right!
It is not retro legislation. Before April 16 these arrangements were ok, from April 16, new ones cannot be set-up.
The government is giving contrators 3 years to re-pay these loans (which is ok if they are 'genuine'). If these are 'fake' loans to avoid tax and thus employees cannot repay them, they will be taxed as employment income from 2019.
It's basically closing a tax avoidance loophole for contractors.
This isn't a standard thing for contractors.If you worked like this then you must have been aware of what you were doing.
Sorry, but you're right to be concerned and in my opinion this is outrageous.
Let me explain - In the early 2000s these loan schemes were being pushed by accountants as a way of saving tax because the half-thought-out IR35 rules made everyone panic. The important thing about this is that AT THAT TIME this was all legal. These schemes could even be registered with HMRC - who did nothing. You might have a view that it's immoral, but the important thing is that it was legal. Move forward to 2016 and the HMRC have now decided that this wasn't legal after all. They've jumped in their Back to the Future time machine and changed the law retrospectively.
It's a bit like the government changing the speed limit on your street from 30mph to 20mph overnight, and then sending you tickets for all the times in the past you drove at 25.
Now the view of these schemes has changed - I think most people recognise it's not ok anymore - but this is hardly 'fair' as Mr Hammond might say. The thing to remember is, they're looking at any loans since 1999 and they're going to be treating ALL the money paid out under those loans (if they are still outstanding) as income. This will be added to your 2018-19 tax return as one lump sum of income that will push many people into the maximum tax band.
Believe me, a lot of people don't know this is coming and their circumstances may have changed dramatically in the last 20-odd years, they may be retired, not working, anything. The taxman doesn't care - he's going to treat that money you had as income, add your NI onto it, and interest too - and just in case you don't feel cr*pped on enough you'll have until Jan 2020 to pay.
This is going to wipe out a lot of people, and there isn't anything you can really do about it apart from prepare for the worst. About the only way to avoid this is to jump under a bus. Sadly I can see people taking that option - Fairness. Don't make me laugh.
I feel so sorry for those not able to pay, but what's just as worrying is the precedent - if the taxman decides he can turn back time when it comes to this then where does it end - your pension? your ISA? Don't bet against it.
I know nothing about the loan schemes, but there has been an even more clear-cut case of retrospective legislation against people using a different tax avoidance scheme that involved receiving income via offshore trusts. It was an extreme example of avoidance, so won't get much sympathy here, but people entered it on the understanding that it was arguably legal, and the worst that could happen is that they might lose in court (against HMRC) if any dispute got to that point. Instead what happened is that government merely changed the law with retrospective effect.
European human rights law usually forbids changing the law so as to make things that were legal at the time illegal with hindsight, however there is an exception that governments can do this for tax law when the change is to "clarify" ambiguous legislation.
Anyway, this thread from another forum might be the right place to follow this up.
Sorry, that thread started in 2011 so may not be quite the same thing. (But is ongoing so may have incorporated the 2016 changes.) In any case, I think that's the best forum for this.
Fair enough. I think people using that forum - unlike the OP - will be aware of this issue though. FWIW, a better bet for the latest details is probably this one
My husband's accountant advised us to use one of these schemes, explaining it would release us from the burden of running a limited company.
My husband has been unable to work for the last three years after being hit by a drunk driver. He was left partially blind and unable to work.
The expected bills for this will push us into bankruptcy.
...for anyone caught up in this. There is a group trying to find a means of settling with HMRC, i.e. a resolution that suits both sides.
It's NOT a means of avoiding the tax, rather it focuses on an equitable settlement.
If you are caught up in this. It's worth joining.
So basically people have been taking loans instead of income from their employers so as to avoid tax. They have been given 3 years to repay these loans or they will have to pay the same tax as every other employee does.
No excuses, pay your TAX
The thing is, as an employee, your employer pays the tax via PAYE. In this case, the employers are long gone and it's easier to chase the little guy at the end of the chain.
A lot of the users of these schemes were, at best, dumb or, at worst, greedy, but they are not Jimmy Carr. There are no massive reserves available to pay these bills and so, in a lot of cases, people will be bankrupted etc.
Oh, and my husband? He worked, for one of these companies, at HMRC.
there has been an early day motion presented at parliament.
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