What is the 2019 Loan Charge?
Thursday 26th September 2019
The controversial 2019 Loan Charge was brought in to tackle a specific form of tax avoidance or what has been described by HMRC as a form of “disguised remuneration.” The charge is aimed at individuals who were paid via loan schemes which were set up to avoid paying tax and national insurance.
With most of these schemes, individuals were paid a small proportion of their salary as PAYE and then the rest of their income as a loan on the basis that the “loan” wouldn’t have to be repaid. As the loans were never intended to be paid back, HMRC has argued that these payments were effectively salary and should be taxed as such.
The controversy arises as many individuals claim they weren’t aware they were being paid in this way. Many of the schemes falsely advertised that they were approved by HMRC and it is thought that thousands of people have been misadvised.
In addition to having been given bad advice many are up in arms that the Loan Charge is seeking to claim back unpaid tax retrospectively to as far back as 1999. This has led to many being faced with hefty tax bills which they are simply unable to pay. The media has been awash with stories of contractors, particularly those in the IT and healthcare sectors, who are now facing bankruptcy because of the charge.
At Sterling we are committed to operating compliantly and to ensuring that those registered with us always pay the correct tax. The Loan Charge is a clear example of why it is important for contractors to work with reputable, compliant organisations and to understand the tax they are paying and exactly how their pay is calculated.
Choosing the right umbrella company or accountancy service is so important for contractors. Selecting the right route is crucial to ensuring that you pay the tax that is required and are operating in a tax-efficient way. If you are considering one of our routes then get in touch and we will be happy to answer any questions you might have about how your pay, tax and NI is calculated.