Recent reports suggest that some Disguised Remuneration scheme and Contractor loans are being called in for repayment following changes to the lenders. Taxpayers affected are advised to seek specialist advice before agreeing to repay their loans.
- Many of the loans made to taxpayers under Disguised remuneration and contractor tax planning schemes were made by Offshore Trusts.
- Some of these loans have been sold on by the original lenders, or new trustees have been appointed, and the new lenders or trustees have been writing to borrowers calling in the loans.
- In 2019 HMRC issued Spotlight 48 warning taxpayers about lenders seeking to charge a fee to write off loans where the taxpayer had settled their scheme with HMRC.
- In some cases, lenders are instead now asking for full repayment of the loans plus interest or offering to accept a lower amount in return for the loan being written off.
HMRC have made it clear that any repayment of a loan after a Settlement has been reached with them will not result in any repayment of tax and will not affect a taxpayer’s liability under the loan charge. They have also stated that they have no power to intervene between the parties of the loan contract and advised that if scheme users are being asked to pay interest they should first check whether they need to deduct basic rate tax at source.
Repaying the loan now will therefore not prevent the loan charge from applying. It will also not result in the repayment of any amounts paid under an Accelerated Payment Notice (APN).
Most taxpayers will have taken disguised remuneration loans on the understanding that they would never be called in. Their loan agreement is likely to state that the loan is repayable and this may be on-demand with little notice. Individuals who have received a repayment request from their lender should take specialist legal and tax advice as soon as possible and before agreeing to pay anything.
Repayment requests should not be ignored. Some lenders are already issuing statutory demands which can be the first step in a creditor instigating insolvency proceedings.
Anyone who is still negotiating a settlement with HMRC under the August 2020 terms must ensure that their loans are dealt with as part of that settlement agreement. This means agreeing with both HMRC and the lender on what will happen to the loans, usually that they are written off, which may have Inheritance Tax implications.
Useful guides on this topic
Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
FAQs for Disguised Remuneration Settlements
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.
Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans outside of the Loan Charge? Is there still a tax liability? Can this be settled?
Disguised Remuneration 2017 settlement opportunity
An overview of the 2017 settlement opportunity for those involved in disguised remuneration schemes. What are the potential liabilities? What is the settlement process?
Spotlight 48: Disguised remuneration: contractor loans settlements and obtaining a deed of release
HMRC have issued Spotlight 48: Disguised remuneration contractor loans settlements and obtaining a deed of release, to clarify how their settlement terms work for inheritance tax (IHT).
External links
LITRG: Contractor loan/loan recall issue – FAQs
ETC Tax: Letter from FS Capital & Contractor loans
HMRC policy paper: Repaying a disguised remuneration loan to a third party
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