2019 tax charge retro law

[user1481978145]

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?

Changing of tax rules retrospectively is disgraceful. I thank my lucky stars that I avoided these schemes in my time and chose the old boring PAYE.

Whilst you are right, there's nothing magical about PAYE (except perhaps weight of numbers) that protects you from a similar retrospective tax grab, if the government decides on it. There but for the grace of God etc ....

Tell them to join the Loan Charge Action Group.
They will get all the help they need.
To Join will cost £100 per person and believe me it's great value.
They are challenging HMRC and believe they have a good chance of beating them and get this over turned.
Contact details:
[email protected]

@DGRossetti

Well yes, you are right. I am not a fan of any loophole exploiting arrangements like that, but many of these schemes were actually audited by the HMRC at the time, widely and openly marketed to freelancers and no adverse findings were ever raised. Now they suddenly changed their mind about something that happened in the past.

A frightening precedent. A bit like saying - we actually changed our minds about the basic income tax rate in 2001 being 20%, now we think it should have been 30%, you have three months to cough up the difference.

A frightening precedent. A bit like saying - we actually changed our minds about the basic income tax rate in 2001 being 20%, now we think it should have been 30%, you have three months to cough up the difference.

Is it a precedent though ? The past few years have seen the - Tory - government sneak and not-so-sneak retrospective changes in the law through, and few squealed. One in particular I recall was rushing to retrospectively change the law so that people who had been illegally sanctioned by the DWP were not allowed to claim damages.

Pastor Neimollers poem springs to mind.

I guess the government has to get Google/Apple/Amazons tax from somewhere. Ideally somewhere that can't really fight back.

I understand the difficulty people are faced with. Help is at hand.
Please join LCAG, they have raised great awareness regarding the 2019 loan charge.
They are very supportive.
www.hmrcloancharge.info/2019_loan_charge_briefing/

I believe today HMRC have published some more details of this - see
www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge

Wow

This the summary today which I saw which pointed me to that link above.

" HMRC policy on loan charge for disguised remuneration schemes published

HMRC has published information on the loan charge which will apply to disguised remuneration loans that are outstanding on 5 April 2019, and which is expected to protect £3.2bn in tax by tackling avoidance schemes

HMRC says an estimated 50,000 people have used a loan scheme that will be affected by the loan charge. Most of them work (65%) in the ‘business services’ industry - this includes jobs like IT consultants, financial advisers and management consultants.

HMRC says the average amount avoided was £20,000 per year, per person and a large number used a scheme more than once. Less than 1% of scheme users have an outstanding loan before 2003 and about half of scheme users have received a loan within the last seven years. Approximately 250 different disguised remuneration schemes will be affected by the loan charge. So far over 24,000 scheme users have registered an interest to settle their tax affairs.

The loan charge works by adding together all outstanding loans and taxing them as income in one year. The result is that individuals are likely to pay tax at higher rates than they would have at the time they were paid in loans.

Anyone who settles their tax affairs before the loan charge arises will pay tax at the rates for the years they received the loans.

HMRC says individuals who have used these schemes have a choice of repaying the original loan; agreeing a settlement with HMRC; or paying the loan charge when it comes in to force.

If an employer set up a scheme then the tax liabilities will fall to them and not the employee. HMRC says it will only seek payment from the employee if it cannot be collected from the employer, for example where the employer no longer exists or is off-shore. In these circumstances HMRC would collect the liabilities owed from the employee who benefited from the scheme.

HMRC says there are a range of flexible payment options for those who want to settle ahead of the loan charge but who may have difficulty paying what they owe.

For instance, scheme users who currently earn less than £50,000 and who are no longer using a tax avoidance scheme are able to agree a payment plan of up to five years without having to supply detailed supporting information about their income and assets.

For those who need more time to pay what they owe, earn £50,000 or more, HMRC says it can work out a manageable payment plan based on their personal circumstances.

HMRC says is currently aware of several schemes that claim to get around the loan charge and is warning people not to use them, stating that they will not work."

I'm really amazed at the language they used in that publication, xenia. Not in the quotes you have put in your post, but statements such as

"HMRC has a legal duty to collect the tax owed. It would be unfair to the honest majority of taxpayers if avoidance scheme users escaped paying their share of the taxes that pay for our vital public services such as the NHS, police, and social services."

and

" HMRC has an outstanding record for supporting those facing genuine difficulty, but who want to do the right thing."

Emotive but very simplistic language. Like they're trying to convince us in baby language.

They've fucked up but it's not their fault:

" The average amount avoided was £20,000 per year, per person and a large number used a scheme more than once. The tax avoided on their income would have provided them with the luxuries and lifestyle that other people on a similar income, who paid their taxes in full and on time, could not have afforded."

Yes, this is astonishing and shouldn't have been allowed to happen but it was legal ffs!

As some agency workers were nurses using these loans HMRC have faced quite a bit of bad press over this so I suppose they are just trying to explain their side of things.

I don’t know if I’m being thick but how can you ever have thought that being paid by way of a pretend loan that you didn’t actually have to pay back so as to avoid paying tax on your income was legit?

And while HMRC might not have punished people for doing this before, they’ve never sanctioned these schemes and have always said they are unapproved and not workable. So if you chose to go with one anyway, you effectively chose to take the risk of participating in an unapproved scheme knowing that HMRC might one day decide to crack down on them. That risk hasn’t paid off, but I don’t think you can claim it’s unfair any more than a gambler can claim it’s unfair when the ball lands on black instead of red.

If you were advised by a tax adviser or accountant that these schemes were risk-free then it’s them you need to direct your ire towards. You might even have a negligence claim.

But the truth is, I don’t have a lot of sympathy for people who consciously chose to avoid their tax responsibilities by participating in an unapproved scheme which any sensible person would have realised was unfair and evasive.

But the truth is, I don’t have a lot of sympathy for people who consciously chose to avoid their tax responsibilities by participating in an unapproved scheme which any sensible person would have realised was unfair and evasive.

Blanched please don't mix "avoidance" and "evasive" in the same sentence, they are very different things legally. Also most of these schemes WERE approved by HMRC at the time, including at least one case I heard of where HMRC took the umbrella company to court and lost.

So if HMRC gives approval for a scheme then changes their mind, in a fair world it would be HMRC who should be liable for giving negligent advice.

You're completely missing the point, which is that those schemes were legal. Now they're not but HMRC is going after people who used them entirely legitimately. It's really shocking that we have a government that behaves in this way.

HMRC didn’t approve them. Not going after people for a period of time isn’t the same as approval.

There’s a big, big difference between ‘these schemes are legal and we approve them’ and ‘these schemes are a legal loophole we haven’t yet closed, but we haven’t approved them and you avoid tax in this manner at your own peril’. This situation is the latter, not the former. It was a risk people chose to take (instead of fairly and responsibly paying their taxes) and that risk hasn’t paid off.

There will always be inventive new schemes for avoiding tax. Just because the law hasn’t caught up with them yet doesn’t mean they’re all above board and approved. If you use an avoidance scheme, I think you have to be prepared for HMRC to catch up one day and tell you it wasn’t fair. The default position ought to be that you fairly pay your tax and anything else is a risk you take - not that you should work your way around the law to whatever extent possible in an attempt to always be a step ahead of your esponsibilities.

HMRC start on the link I posted above by saying "HMRC has never approved these schemes and has always said they don’t work."
Also if one agency you might contract your services through says you will only pay 15% tax by lending you your pay and another says 20% or 40% most people were perfectly aware at the time that it was a ruse not likely to work and instead they paid their 40% tax like the rest of us did.

(This is not the same by the way as cases relating to people being paid dividends and salary through their own limited company - it is about these loan arrangements).

I don't agree with retrospective legislation any more than anyone else but in my view it is not as straightforward as HMRC approved the arrangements and now it has changed its mind and HMRC certainly do not admit that is what has happened either. The reputable employment agencies who did not use the schemes found some workers were not flocking to them and instead went to these loans with 15% income tax only paid which was not very fair on the agencies who did not sail so close to the wind.

There’s a big, big difference between ‘these schemes are legal and we approve them’ and ‘these schemes are a legal loophole we haven’t yet closed, but we haven’t approved them and you avoid tax in this manner at your own peril’. This situation is the latter, not the former. It was a risk people chose to take (instead of fairly and responsibly paying their taxes) and that risk hasn’t paid off.

Quite.

HMRC frequently closes loopholes. This is not retroactive legislation.

Would anyone consider suing a financial adviser for negigence? If they recommended one of these schemes to you and said they were approved?

It would depend on the wording of the letter of advice from the adviser and what their terms and conditions said about liability. It is more likely the asdviser's terms say on your own head be it, take your own tax advice, call HMRC if you are not sure, I suspect.

And while HMRC might not have punished people for doing this before, they’ve never sanctioned these schemes and have always said they are unapproved and not workable. So if you chose to go with one anyway, you effectively chose to take the risk of participating in an unapproved scheme knowing that HMRC might one day decide to crack down on them.

I agree. And I heard on the radio today that this is likely to bring in £3.2bn. I realise that's not much compared to the overall tax take, but public services could do a lot with it.

I agree. And I heard on the radio today that this is likely to bring in £3.2bn. I realise that's not much compared to the overall tax take, but public services could do a lot with it

It won't go to public services though will it, that's the problem. I see a lot of talk about whats "fair" or "morally right". Have you any idea how many billions the government squander with no one calling them to account?

Sorry, but if I can pay less tax I will, and I won't feel any qualms about it. If I knew my tax money would go to public services I would happily pay with a smile on my face, knowing my contribution was making a difference to peoples lives. But it doesn't. Every single public service is cut to the bone. I work in one such service so I see what is going on.

Instead of putting so much attention on the little people who have "avoided" tax, lets ask the serious questions about exactly where our tax money is going.

Hello all. I have just seen this article, and think it makes some excellent points that help navigate this complex issue. www.thisismoney.co.uk/money/taxbeating/article-7376787/Self-employed-face-losing-homes-innocently-using-tax-loophole.html

Just bumping this - has anyone had any resolution of being able to work out a pay plan or resolution with HMRC? I can see that letters are dropping on peoples doorsteps now, with some very frightening numbers

I have nothing to add but remain interested in it more generally.
(For those who contract through their own limited company covid delayed the extension of the IR35 rules by a year but that change then went ahead; and plenty of people operate through umbrella companies like Parasol paying their full PAYE income tax and NI via the umbrella company)