It is generally accepted that the contracting loan schemes came into force in response to the IR35 legislation introduced in 1999, which used the payment of public sector workers as contractors – with all the tax advantages it brought them – while being “disguised” workers. In short, the legislation provides that in labour agreements that cannot be distinguished from those of permanent employees, contract workers must pay tax at the same rate as these workers – even if they have worked through a limited company, an umbrella company or a third-party agency. Whatever your views on HMRC`s retroactive measures towards loan system users, it should be clear that the risks associated with the application of tax evasion rules far outweigh the long-term benefits. Anyone who works as a freelancer or entrepreneur must be extremely careful when it comes to a system that advertises an unrealistic share of income as a take-out wage – even if these systems are covered by existing legislation, the measures taken in the area of lending systems prove that HMRC can treat them as tax evasion and impose penalties at an indeterminate point in the future. This programme will be published as soon as the necessary agreements have been concluded and the agreements are formally open to applications. Credit systems for contractors (or as the government calls them disguised compensation agreements) have many forms – but the underlying structure is that a self-employed or contracted person signs an employment contract with an employer or an EBT (labour benefit fund) that is normally outside the jurisdiction of the United Kingdom. The employer then pays the contractor tax-exempt “loans” – which appear on paper as loans, but must never be repaid. In return, the system provider accepts a percentage of the contractor`s income as “administrative costs.” If you are currently using a credit program (which is unlikely, as the operators of these systems have been largely deterred by the strong measures taken against them), warn that HMRC does not seem to accept a defence related to naivety, ignorance or deception – if you have personally avoided controlling income, your motivations will not be taken into account. IR35 legislation has resulted in a high level of participation of public sector contractors in revenues, particularly in the information technology sector. As a result, many alternative agreements – particularly loan schemes – would allow them to earn their net income. As might be expected, HMRC is only very attached to these rules.
If you are among the tens of thousands of people already reviewed by HMRC, you will probably already seek legal advice – the starting point is that the tax should be refunded by April 6, 2019. There are concessions, if you talk to HMRC and you come to an agreement before that date — if you earn less than $50,000 a year, the refunds can be spread over five years, and if you earn less than $30,000, the repayments can be spread over seven years. This is not as generous as it sounds – the fact that interest is calculated on outstandings over the repayment period shows that HMRC does not provide much flexibility for users of these systems.