‘Loan’ scheme contractors offered chance to settle with HMRC

Individuals who used ‘contractor loan’ schemes to avoid tax in the past have been given six months to settle their outstanding liabilities with HMRC ‘on the best possible terms’.

This ‘settlement opportunity’ is targeted at the estimated 16,000 individuals who have participated in such schemes, owing £11,000 per year on average, according to HMRC.

This campaign covers tax years up to the end of 5th April 2011. The disguised remuneration rules were put in place to deal with tax avoidance cases from the start of the 2011/12 tax year onwards.

What is a contractor loan scheme?

These schemes, which have been heavily marketed to IT, finance and engineering contractors in recent years, are complex. But, put simply, a contractor will sign a contract of employment with an offshore employer, and receive a large proportion of their income in the form of ‘loans’ rather than income.

Of course, these loans are non-taxable, and are never expected to be repaid, so the user saves a fortune in tax, and the Treasury loss hundreds of millions per year in tax receipts. In the meantime, the scheme provider will take a percentage of its users’ contracting turnover as a fee.

What is this settlement opportunity?

If you’ve used a contractor loan scheme in the past, HMRC will allow you to repay what it believes you owe in tax, plus interest on the value of any ‘loans’ you received from the scheme providers – the most favourable terms possible – by January 2015.

HMRC warns that should you fail to settle your tax liabilities by this date, then you could potentially face far greater penalties, including the costs of defending yourself in court.

Jennie Granger, Director General for Enforcement and Compliance, says that the odds are stacked against tax avoiders when it comes to winning tax avoidance cases – with HMRC winning 80% of cases which come to court: “The costs for users are high, potentially resulting in penalties, charges and significant legal costs for scheme users.”

Further Information

For further details on the settlement opportunity, how to find out what you owe, and how to contest a demand for payment, visit HMRC.