HMRC has issued renewed guidance on contractor loans, emphasising that loans paid to contractors or freelance workers through trusts or umbrella companies are subject to tax in the same way as other income, reports CCH Daily.
The guidance states that under a contractor loans scheme individuals are paid in the form of a loan from a trust or company, sometimes referred to as a remuneration trust.
HMRC says that while scheme promoters advise the payment is non-taxable because it is a loan, and does not count as income, in HMRC’s view as the individual does not pay the loan back it is no different to normal income and is taxable.
The guidance warns that HMRC challenges such schemes, and is issuing accelerated payment notices to individuals where the amount of tax due is in dispute.
HMRC states that if the loan was paid through a trust, there may also be an inheritance tax liability at some point. It warns that during an investigation into a contractor loan scheme, HMRC will ask to see the information an individual provided to their mortgage company or other creditors.
The guidance states: ‘If the income on your tax return is lower than the income on your mortgage application, HMRC may charge you penalties and interest as well as the additional tax you should have paid.’
HMRC is advising anyone who is in such a scheme and wishes to settle to contact its contractor loans helpline.
The guidance on contractor loan schemes follows changes made in Budget 2016 to address a number of issues related to disguised remuneration.
At the time, HMRC issued a policy paper on the subject, with a technical note which indicated it is considering retrospective action against individuals who have participated in such schemes and have not taken up past settlement opportunities.
The paper states: ‘The government is also committed to ensuring that those who have used these schemes in the past aren’t allowed to get away with it. To meet this objective, the government will introduce legislation to put beyond doubt that all loans or debts from a disguised remuneration scheme will be taxed as earnings if they haven’t already been fully taxed or repaid on or before 5 April 2019.’