HM Revenue and Customs (HMRC) has issued a fresh warning about schemes used to avoid paying tax by trying to disguise income with loans that are never repaid.
The UK tax collector has warned advisers about these so called ‘disguised remuneration schemes’ before, but said on Monday that the schemes are continuing to be marketed and are likely to be come from an “offshore location such as Cyprus, Malta or the Isle of Man”.
Disguised remuneration avoidance schemes are used by employers and individuals to avoid both income tax and National Insurance contributions. They normally result “in a loan from a third party on terms that mean it’s unlikely to ever be repaid”, according to HMRC.
From 1 January 2019 it is no longer possible to postpone the loan charge. Tax payers have to pay the loan charge for any loan from 6 April 1999, even if if was received through a disguised remuneration tax avoidance scheme and is still outstanding on 5 April 2019.
HMRC has said it will be taking action against the promoters and users of the schemes.
Unaware of advertising
In response to this latest HMRC warning, the chairman of promotional body Finance Malta, Kenneth Farrugia, told International Adviser: “I have liaised with the Institute of Financial Services Practitioners and they are not aware or have never come across any members that have advised on any such schemes.
“In addition Malta being referred to as an offshore jurisdiction by HMRC is also incorrect as Malta has changed its legal and regulatory framework from offshore to inshore since November 1994 and is today a member of the European Union since May 2004.”
Identifying the schemes
HMRC said those that promoters of the schemes often claim that by “entering the scheme, your disguised remuneration loans are paid off”, and the scheme is not “disclosable under the Disclosure of Tax Avoidance Schemes regime”, and that it “may have benefited from a QC opinion”.
It warned that promoters “may have professional marketing material, including a website”, and will say that a disguised remuneration loan can be paid off or repaid without a “real economic consequence to the transaction”.
Any scheme or arrangement that claims to avoid the loan charge is tax avoidance, it said.
Avoiding the schemes
HMRC said: “The disguised remuneration loan charge legislation addresses attempts such as these to avoid the rules, as it disregards any non-monetary repayments.
“This means the outstanding loan balance will be subject to the charge.
“The legislation also excludes any repayments connected to a tax avoidance arrangement.”
It also said if you sign up to these schemes – you are likely to pay administration and promoters fees that cannot be recovered and remain liable for the loan charge.
IA has contacted the Isle of Man government, Isle of Man Financial Services Authority, Cyprus Securities and Exchange Commission, and the Malta Financial Services Authority for a comment.
