PAYROLL INSIGHT
Disguised remuneration
Diana Bruce, MCIPPdip, CIPP senior policy liaison officer, discloses the actions some employers andworkers must urgently take
D isguised remuneration tax National Insurance contributions (NICs). They normally involve a loan or other payment from a third-party which is unlikely ever to be repaid. These schemes have been used by employers and individuals, and also contractors (referred to as contractor loans). Most employment agencies and umbrella companies operate within the tax rules, but there are some, however, that promote arrangements which claim to be a ‘legitimate’ or a ‘tax efficient’ way for a worker to keep more of their income by reducing their tax liability. These arrangements leave the worker at risk because individuals are ultimately responsible for their own tax affairs and for paying the correct amount of tax and NICs. These types of arrangements are never HM Revenue & Customs (HMRC) approved and are likely to result in paying additional tax, interest and penalties. The arrangements may vary, but as an example this is how they might operate: ● ● a small payment is received which has tax and NICs deducted ● ● at the same time (or shortly after) a larger payment is received without tax and NICs deducted ● ● the larger payment may arrive from a different account than the first payment, possibly from overseas, although not avoidance schemes claim to avoid the need to pay income tax and
necessarily ● ● the payslip may show the larger payment separately and refer to it as something other than ‘pay’. No tax or NICs have been deducted. ...includes any form of credit and a payment that is purported to be made by way of a loan introduced by Finance (No. 2) Act 2017, is a tax charge on employment related taxable loans made by third parties on or after 6 April 1999 brought within Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The loan charge was introduced to tackle disguised remuneration loan arrangements and will apply to all outstanding loans on 5 April 2019. Anyone who has received such loans instead of standard income and who has not taken action by then to either settle their tax affairs with HMRC or repay their loans, will face the loan charge. For the purposes of the loan charge, a loan includes any form of credit and a payment that is The 2019 loan charge The 2019 loan charge, which was
purported to be made by way of a loan. Those who do not settle their disguised remuneration scheme with HMRC before the loan charge arises, will need to take steps to report any outstanding loans as employment income of the employees or directors to which they relate. These amounts must be treated as employment income of each individual arising on 5 April 2019. The pay as you earn (PAYE) income tax and NICs due on these amounts must be paid by 22 April 2019 if paying electronically or by 19 April 2019 if paying by post. Reporting requirements Employees and former employees have a legal duty to provide their employer with details of their outstanding loan amounts at 5 April 2019. The required information must be provided to enable the employer to report the correct amount of any outstanding loans and operate PAYE on those amounts. If the information is not received by HMRC by 5 April 2019, then the loan charge will apply. HMRC has written directly to over 40,000 users, identified through its compliance work, IT records and tax return data. An employer’s payroll software will need to support reporting of the disguised remuneration loan charge but if it doesn’t then HMRC’s Basic PAYE Tools has been updated for the 2018–19 tax year to enable this reporting.
| Professional in Payroll, Pensions and Reward | April 2019 | Issue 49 16
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