Contractor Loan Schemes and HMRC
HMRC have featured contractor loan schemes in their Spotlights series. “Spotlights” are the schemes that HMRC have looked at and determined that (a) they don’t like them; and (b) they don’t work. As a result they are pursuing a number of loan arrangers and all their clients.
Not only are the schemes aimed at contractor Limited companies being targeted but HMRC have also attacked schemes using self-employment and partnerships.
How contractor loans work
In a contractor loan 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 are providing work for because it’s diverted through a chain of companies, trusts or partnerships.
HMRC’s vewpoint…
HMRC have issued a warning:
- In their view the loans are taxable as they represent payment for work undertaken;
- HMRC never approve a contractor loan scheme. Just because something has not been to court does not make it an approved scheme;
- HMRC have issued accelerated payment notices in respect of these schemes. This means you have to pay the tax upfront and argue about the legalities over the next months and years; and
- In the view of HMRC these schemes may result in an Inheritance Tax charge in the future.
What do we think at Clearways Accountants?
We have been approached by, and our clients have also been approached by, promoters of contractor loan schemes. We can only comment on the schemes we have seen and to date we have not seen one that we believe works on a technical/tax legislation basis.
We have also noticed that these companies shy away when asked to supply any detailed tax counsel view on the scheme – perhaps we are just too demanding?!
Our advice is…
Ask your accountant to review the scheme, they have your best interests in mind; the promoters of these schemes are in it to make money for themselves.
Secondly, beware of new companies offering these schemes. If you search online you can find a litany of contractors that have been persuaded to try the schemes only to find the promoters disappear when HMRC open an investigation.
Remember caveat emptor…buyer beware!
If you would like help understanding a contractor loan scheme, then please contact Clearways Accountants on 01737 244298 or through the contact form for your free consultation.