Alternative remuneration loan practices are now under the gun and subject to taxation. HMRC is targeting offshore tax avoidance schemes used by individuals and businesses, according to reports. The expectation is that the crackdown will raise an extra £3.2 billion in taxes.
Namely, so-called disguised remuneration loans will be subject to charges. This scheme involves loan payments instead of ordinary income to avoid income tax and National Insurance Contributions (NICs). Despite being referred to as loans, they are in fact provided on terms that mean they rarely get repaid.
What is it called?
Known as the 2019 loan charge, estimates suggest the 2019 remuneration loan charges will affect 50,000 individuals. For perspective, 65% of those individuals operate in the business services sector. According to data from HMRC, those involved earned on average twice as much as the average UK taxpayer, with 70% of them using the schemes for two years or more.
Anyone in receipt of a loan meeting the criteria of the new legislation will see the loan treated as income and taxed from the 5th April 2019, with the deadline for the payment on 31st January 2020.
What does this have to do with umbrella companies?
Unfortunately, there are a number of non-compliant umbrella schemes in operation who prey on workers who wish to counter any loss of earnings. They do this by:
- Offering workers as much as 90% of their earnings, then;
- Reassuring them that they don’t have to declare it, before;
- Claiming the scheme is HMRC-approved.
All of which is untrue.
HMRC has strongly advised that workers who have found themselves in such schemes withdraw immediately and settle their tax affairs, in order to avoid the costs of investigation and litigation, as well as minimise interest and penalty charges on the tax they should have paid.
Working with a compliant umbrella company
Remember: HMRC governs ALL umbrella companies. That means your earnings with one company can’t be any higher than they would be with another. The only variance is the margin that the umbrella company retains. Also, an umbrella company’s margin shouldn’t change based on how much you earn, i.e. it shouldn’t be a percentage of your rate as there’s no more work involved whether you’re paid £100 or £1,000.
Peace of mind with Mango Pay
Mango Pay provides morally compliant, top class service to both contractors and recruitment agencies. Because we take pride in being one of the most trusted umbrella companies operating in the UK today. That’s why our transparent approach guarantees complete peace of mind and security at all times.
Thus, all of our umbrella employees benefit from:
- A quick and easy setup.
- Text and email alerts once your payment has been processed.
- Comprehensive insurance.
- Full employment benefits – including SSP, SMP, SPP and much more
- Online forms to submit expenses and timesheets, submit Right to Work (RTW) documents & request holiday pay.
- Holiday pay – ethically paid, every time.
- Faster payment – made as standard.
- Immediate email of payslips after processing.
- Experienced customer service team to resolve all employee queries.
Read more about our umbrella solutions, or contact a member of our friendly team for no-obligation advice and guidance. Follow our blog for more about 2019 remuneration loan charges and related news.