Contractor loan schemes given time to settle

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Contractors who have taken out loans to avoid income tax have until 9 January to settle their affairs, HMRC has said.

A contractor loan scheme uses an offshore company to pay contractors a large proportion of their income through a loan instead of a salary.

Contractors can bring their tax affairs up to date "on the best possible terms" for tax years up to 5 April 2011, according to the Revenue.

"In general terms, for a limited time HMRC is offering to tax the amount received as loans at marginal income tax rates and in most cases there will be no claim to PAYE or National Insurance Contributions (NICs)," said tax expert Ray McCann from Pinsent Masons.  

"Late payment interest will be added but there will be no penalty."

About Nick Huber

Nick Huber profile image

I’m a specialist business journalist and have a particular interest in tax and technology. 


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05th Aug 2014 15:12

I wonder

If you have an open enquiry for, say, 2008/09 but not for later years - if you call to settle with them will they ask questions re later years potentially leading to further enquiries being opened, when if you just pay up for 2008/09 without using this settlement opportunity, if they would just go away...?

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06th Aug 2014 19:44

Seems very generous of HMRC for what should be easy pickings for them.

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06th Aug 2014 21:59

this sounds quite interesting...
.... I wonder how many will take it up!

I don't like such schemes, however If I had entered into one I would sit and wait it out. With reducing numbers of staff at hmrc and the number of new issues they are pursuing or intend to pursue, I just don't see the employee numbers stacking up to their intentions. So worth taking a chance and hope you are not the 1% being picked on.

If hmrc were serious about increasing their investigation yield on all that they preach then they would strengthen their numbers significantly.

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11th Aug 2014 12:26

Settlement opportunity

No surprise HMRC are trying to settle some of these cases, but the terms offered are not very attractive, especially when you look at their track record in loan cases.

Time and time again the courts have ruled that a loan is a loan is a loan (Just look at the Rangers case). HMRC must know by now that they are on to a loser in persuing these cases by now, and most of the educated contractors know the same.

The announcement is a PR excercise, and very few will take advantage of HMRC's perceived generosity.

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11th Aug 2014 13:20

I do wish

"In general terms, for a limited time HMRC is offering to tax the amount received as loans at marginal income tax rates and in most cases there will be no claim to PAYE or National Insurance Contributions (NICs)," said tax expert Ray McCann from Pinsent Masons.  

"Late payment interest will be added but there will be no penalty."


I do wish the law would apply as we know it instead of all these HMRC special offers that seek to rewrite the rules. This is merely an encouragement to others to behave in the same manner.

Have I read this right? The loan is not a loan but income. Other income? not Paye.

If these were loans they would be repayable in reality (substance over form) surely.

Who would work knowing all their earnings were repayable to their employer? What was the only or main reason you arranged your tax affairs in this way?

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11th Aug 2014 16:06

When is a loan not a loan

Judging by the latest court ruling (The Rangers case) HMRC judgement isn't the most reliable in forming an opinion on this subject. HMRC have systematically lumped all loans in to the same basket. In their opinion "loans are taxable"....period. I can only presume they do not have the common sense to differentiate between what is a loan and what are earnings, either that or they have no will, which is probably the more likely.

99.9% of us know if we've received a loan or if we've received income, as Black Knight rightly says who in their right minds is going to provide a 'service' if they are genuinely contracted and have every intention to repay their reward, it's nonsense.

However as HMRC failed to convince a Court that footballers won't ultimately repay their loans for services rendered in some thirty or forty years time, then I suppose contractors will think likewise. What's good for the goose is good for the gander and why not.

Similarly though there are those stuck on the other side of the fence who have taken genuine loans (from connected parties, all other forms of commercial loans having been taken away from us all as a result of the banking crisis) and who are now threatened with those loans being taxed as earnings. Maybe the Court in providing it's opinion has one eye on the Magna Carta protecting the common man from the King, or in this case the taxpayer from HMRC! The floodgates will certainly open if HMRC do win their appeal in the above case should indeed they get leave to appeal that is. 

We are constantly being asked to self assess, and if HMRC are going to attack every loan as earnings, isn't it time rules were properly laid down so we all know in advance what we the taxpayer are letting ourselves in for rather than retrospectively be at the whim of HMRC, who have deep pockets when it comes to legislation.  

HMRC and HMG have ping ponged this problem for over twelve years ever since Dextra, and not until FA 2011 did HMG finally come out and say all such loans will be treated as earnings, doesn't help the economy mind you but at least we now know the rules! 

It would be nice however if HMRC would finally draw a line under this matter and acknowledge the unclear situation they and their paymasters HMG have allowed to go on for so long, enough of the threats, enough of the Court cases, enough of this p.r.

If HMRC and HMG are serious about closing loopholes they created, then they should act far quicker and not allow situations like this to have got so out of control. If you've made a mistake, intended or not, then you should put your hands up, live with it, and put the matter right, but I suppose politicians and civil servants find it hard to admit their past mistakes, let alone know how to avoid future ones! 

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By paddy55
12th Aug 2014 03:25

Taxable loans

It's silly paying wages as a loan or donation.

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