HMRC to undertake increased compliance activity on disguised remuneration

Some employers and individuals can expect contact from HMRC regarding the Loan Charge.  Employers should have reported and paid the Loan Charge by now.  According to HMRC, there are “number of those have not yet done so”.  I am not at all surprised by this for a number of reasons.  Whether its called Disguised Remuneration or the Loan Charge, its not going to go away.

Reporting and not paying

HMRC’s timing has never been great.  The pandemic has hit the economy hard and for some harder than others.  The April 2019 deadline pre dates the rise of the pandemic so it is surprising that some employers reported the facts to HMRC but then still failed to pay up.  HMRC will pursue these employers and take steps to recover the liabilities even if the company has failed by transferring the liability to the individual.   Most typically, loans fall under the heading of Disguised Remuneration regardless of the flow of funds.

Onshore employers

HMRC argue that the Disguised Remuneration is taxable as employment income.  Employers are obliged to operate PAYE and primary Class 1 NIC in the first instance.  Nevertheless, the liability rests with the individuals.

HMRC does have the existing power to transfer the liability to the employee in specified circumstances.  Under Regulation 81, for example, the tax can be collected from the individual.  In the event that the onshore employer has no assets, HMRC will seek to transfer the tax liability to the individual.

Employers are also liable for secondary Class NIC, not the employee.

Where an employer no longer exists, no NIC is due from the individual.

Offshore employers

HMRC believe approximately 80% of all Disguised Remuneration schemes have used an offshore employer.  HMRC receive information under the Common Reporting Standard.

Where there is an offshore employer that does not operate PAYE, the normal rules setting out who is responsible for operating PAYE transfer the responsibility to the first party onshore involved in the supply of the individual’s services (‘onshore entity’).  This could be a recruitment agency or the end client using the services supplied by the individual.

HMRC collects the tax liability from the individual.  No NIC is due.

Assuming the ostrich position

There will be some who do not want to engage with HMRC for many reasons.  HMRC do not like being ignored.  These employers (onshore and offshore) and individuals are unlikely to have reported the Loan Charge.

What can we expect to happen?

Initially, HMRC will seek to confirm the information they already hold.   They will then move to raise assessments and seek to collect the debt.  There may be scope to appeal and postpone the amounts being demanded.

However, if a Determination is made by HMRC, then no appeal can be made.

Help is at hand

If you would like to discuss this matter further, please contact me at paul@pmc.tax or on 07979 313 010.

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