When something seems too good to be true… Michael Lansdell

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  Posted by: The Probe      3rd November 2019

We all know to check the detail and read the small print before making any financial commitment. What looks like a fantastic bargain or brilliant deal may have strings attached, which go unnoticed in your excitement to snap it up. For example, a great offer for new dental chairs might turn out to be not-so-great – maybe you didn’t realise that the range was soon to be discontinued. Hindsight is a wonderful thing. Which is why we should spare a thought for anyone caught up in the controversy around the loan tax charge deadline, on 5 April this year.

What were loan tax schemes?

In the late 1990s and early 2000s, around 50,000 workers (mostly contractors and consultants) were offered a way of having their salary paid which involved no tax liability. So, no income tax and no national insurance contributions (NICs). If you’ve just choked on your coffee at the idea that no one saw red flags, these schemes did appear solid 15 or so years ago, which is why so many took part. Also, attitudes towards what look like – on paper, anyway – tax avoidance schemes are different now in 2019, so we should bear this in mind.

Regardless of what structure the scheme took, the basic arrangement was that the worker was paid by way of a low or zero-interest loan. Although HMRC called loan tax schemes “disguised remuneration” and has insisted it never approved them, it also took its time putting legislation in place that blocked them. It also wasn’t until 2016 that laws were introduced which stipulated that, from 5 April 2019, the amount of any loans outstanding by this time would be treated as income. This is retrospective too, so all the outstanding loans of up to 20 years will be added together and taxed as income. The bill needs to be paid by the end of January 2020. The result? Many people are now facing a massive tax bill (the average amount is an eye-popping £64,000) with no means of paying it.

What is each side saying?

HMRC says that anyone settling their bill (or who declares that they intend to settle) can spread the cost. For example, if they earn less than £50,000 (and no longer use tax avoidance schemes), they can spread the cost over a minimum of five years. Its advice? If you are affected, you must come forward so that a plan can be put together.

On the other side of the fence, there have been calls from MPs to delay the loan tax charge. The independent Loan Tax Charge Action Group says that because these schemes were declared to HMRC at the time, yet not condemned by law for many years, the charge should not be retrospective.  

When it comes to checking the small print, it can be argued that those who participated in these schemes back then, did think they had all the information they needed to make the right choice. The issue here is that HMRC took a while to decide that it should bring in legislation to deter workers from these schemes, which promised a way for people to avoid all tax and NICs on their earnings.

With the controversy set to continue, my advice is to think very carefully about any kind of ‘aggressive’ tax planning schemes that seem too good to pass by. If the wind changes, you could be left short. A specialist dental accountant – like the team at Lansdell & Rose – will offer you good, practical advice. Tax planning can be productive and stress-free, if you take a pragmatic approach.

 

For more information please visit www.lansdellrose.co.uk
or call Lansdell & Rose on 020 7376 9333.

 


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