HMRC have released additional guidance explaining how taxpayers using employment related disguised remuneration schemes can pay their loan charge direct.
The loan charge came into force on 5 April 2019 for all outstanding Disguised Remuneration loans taken out since 1999 where a Settlement had not been reached with HMRC (or was not in progress) by that date.
- For employment related schemes such as EBT’s and EFRBs the primary liability lies with the employer company.
- Where the employer is UK based and settles the loan charge, the employee has until 5 July 2019 to “make good” the income tax, or the amount will be grossed up and a benefit in kind charge will be due, meaning that the employee will owe additional tax.
- In some cases the employer can facilitate this by deducting the amount needed to make good through the payroll.
- In others however as the employee may not have sufficient monthly earnings to cover the amount due and would need to make a payment to their employer by 5 July.
- HMRC have now said that if the employee is concerned about being given the chance to make good the loan charge to their employer then they may instead pay the charge directly to HMRC.
- They must contact HMRC and reach a binding agreement on this by 4 July 2019 to ensure the additional tax does not become due.
HMRC’s guidance also states that where the employer does not pay, and the loan charge income tax liability is transferred to the employee (under regulation 81 of the PAYE regulations), additional tax charges will apply.
This is because the loan amount will be treated as a net, not gross, amount. HMRC say that a regulation 81 determination will only be raised where other options, such as giving the employer time to pay, have been exhausted.
Employees who think their employer may not have paid the charge may be well advised to contact HMRC to establish their position rather than wait and see if a regulation 81 determination lands on their doorstep.
Links to our guides:
Disguised remuneration loan charge
Disguised remuneration final settlement opportunity
FAQs for Disguised Remuneration settlements
External link:
HMRC guidance Report and account for your disguised remuneration loan charge
