Is this legislation too good to be true?
QUESTION: What is the new “loan charge” legislation being brought in from April 2019?
ANSWER: Over the past 20 years an industry has developed in the avoidance of PAYE and national insurance contributions. The genesis of this avoidance industry started with company directors who often received bonuses in the form of gold bullion, fine wines and even oriental carpets.
As the industry developed, more sophisticated methods of tax avoidance were employed to counteract HMRC's continual crackdown on PAYE and NIC avoidance.
These culminated in the use of off-shore structures from which employees were given loans rather than salary in attempt to say that the employees did not have any earnings and therefore were not subject to PAYE or NIC.
The most famous participant in this form of tax avoidance was the Scottish football club Rangers, whose wholesale use of off-shore trusts to pay its players ultimately culminated in its liquidation and plummet to the very bottom of the Scottish football ladder.
In July 2017 the Supreme Court finally ruled that the emoluments or earnings and payments from the Rangers Trust should have been subject to a deduction of income tax and NIC.
This decision has had a very wide ranging effect because it not only catches very wealthy individuals who have used off-shore trusts or EBT arrangements, it also is being used by HMRC to apply to the much lower profile and earning contractor loan schemes through which many contractors such as teachers and nurses were remunerated. These lower paid contractors were usually unwilling participants often having to agree to be paid in this way to get a job.
HMRC has introduced a draconian piece of legislation known as the “loan charge rules” which takes effect from April 5 next. At this date any contractor who has not repaid the loan they received from an off-shore trust will have to self assess themselves to income tax and national insurance on payments received as far back as 1999. The same principal applies to wealthy individuals who have received loans from EBT's in the past and whose loan still remain outstanding atApril 5.
It is estimated that up to 50,000 people may be caught by this legislation change which could still be the subject of judicial review.
Builders are also being approached by service companies offering to alleviate them from the employment status issues associated with labour only sub-contractors – that is, are they employees or self employed sub-contractors?
Such agencies are promising contractors a panacea for this age-old chestnut within the construction industry. Such arrangements should be approached with extreme caution as if in the future they are challenged by HMRC it is unlikely that the agency will still be in existence to defend their scheme.
Furthermore, HMRC now has an arsenal of weapons to attack such arrangements including the disguised remuneration legislation and the General Anti Avoidance Rule to name but two. So if it sounds too good to be true, it probably is.
:: Paddy Harty (email@example.com) is director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.