Contractors and Business Owners have been using Loans as disguised remuneration for decades.
Basically, a loan isn’t income so schemes have been created to lend money through various means. HMRC view these as tax avoidance.
How contractor loans work
In a contractor loans scheme you’re paid in the form of a loan from a trust or company, sometimes referred to as a remuneration trust.
You don’t get your payment (or ‘loan’) directly from the company you’re providing work for because it’s diverted through a chain of companies, trusts or partnerships.
The companies that promote these schemes will tell you this will save you tax.
Why these schemes could cost you more
Scheme promoters will tell you that the payment is non-taxable because it’s a loan, and doesn’t count as income.
In reality, you don’t pay the loan back, so it’s no different to normal income and is taxable.
So if you’re using one of these schemes and being paid this way you’re highly likely to be avoiding tax. You could end up paying additional taxes, penalties and interest as well as a fee to the promoter.
https://www.gov.uk/guidance/contractor-tax-loan-schemes-can-cost-you-more
What if its not called a loan?
Contractor Weekly reported this week that Contractors are now being advised to say that they holding funds in ‘fiduciary capacity’ on behalf of the company.
According to their article calling a loan by a different name doesn’t impress HMRC, it looks like a loan so it is a loan!
It is recommended that you tell HMRC about these schemes by e mailing exitstream.counteravoidance@hmrc.gsi.gov.uk
If you are using one of these schemes HMRC will be looking for you!
