I wouldn’t get too optimistic based on the tone of the letter. You will likely get a follow up letter at some point which is generally standardised to say how interest and penalties are charged and how it’s linked to behaviour. They way you behaviour/comply from this point is a contributing factor, but I’m sorry to inform you that you will most definitely be charged interest and will undoubtedly receive some form penalty for non-disclosure and underpayment of tax. You will however have the opportunity to appeal against the penalty at least but you will need to evidence in some way that you acted with due care and consideration. Carelessness will still result in penalties.
From personal experience as well as colleagues still trying to settle under the 2020 loan charge which were late disclosures but prompted, ie HMRC had already opened up and enquiry similar to yourself, HMRC have suggested to penalty range is between 15-30% of the tax due. Late interest is also added to that. I would strongly suggest you start to gather whatever you have on how you joined the scheme, how you checked it was ‘legit’ and what due diligence you completed.
This is a long drawn out process from here I’m afraid. As some have suggested, HMRC have opened up and enquiry, now the year is open, I can assure you there are a significant number in the same position but there are 2 options available in my opinion;
1. Provide HMRC what they want and sit back and wait and be one of the tax payers that wishes it goes away/forgets about it and let’s interest build up (HMRC seem more than happy to let liability and penalties build up!!)
2. Proactively provide the info, seek appropriate tax advice which will likely mean disclosure of the entire scheme for the year and future years (there is argument you could change 2017 year now 4 years has passed so a discovery could not be made but I suspect HMRC may still try). Work with a tax advisor to calculate what you owe and request HMRC to check/agree calculations to move to a settlement position.
Even getting to a point of agreement with HMRC under point 2 could take a few years! I personally would start to pay what you can on your HMRC tax account to reduce to interest and again it’s linked to your behaviour/cooperation.
if you were earning £1350 weekly (please note these numbers are crude and estimated and are purely for illustration purposes based on your example provided) lets say for 46 weeks a year, I’d roughly say you should have paid £12k a year tax and £5k a year National Insurance but I suspect you might have only paid £1k annual tax if that??
You could probably do the math from there. HMRC have charged interest at roughly 3% each year give or take 0.25%. The level of penalty is the biggest unknown.
One thing I would check is whether the loan is written into Trust or not. If it is, there could be IHT implications also.
I echo comments from other members here. Absolutely shocked these practices dare continue and quite clearly the consequences of operating them are not suffice to put the scheme owners off. I would personally name and shame the umbrella and associated accomplices if agencies or promoters were involved. The number of colleagued tied up in this is purely shocking and there are many more than need the warning. Posting the umbrella/agencies names here gives those that do some level of due diligence before they join by searching the internet and opportunity to hear your story!! Also, please don’t tell me this practice is ongoing in the NHS still or Financial Services (I don’t believe you shared your role/industry)?? It’s possible to even question your end employer as under the revised legislation, the end employer has responsibility on the entire supply chain from a tax perspective. There should be appropriate due diligence by them on any umbrella firm they work with otherwise they could also find themselves open to HMRC scrutiny and penalties. I’d be interested to know who your end client is.
You have come to the right place to summarise to help you get through this. I don’t often post as I find it difficult to find the time but I’d genuinely hope the above is informative and supports you. I just hope that you do find the courage to name and shame, it can only help prevent others from falling foul. I already commend you for facing up to what is ahead of you, reality will soon hit your other colleagues whether this year or in 5years time but the longer it takes, sadly the more hard hitting it will be for them.
Keep posting, keep it touch.
J
From personal experience as well as colleagues still trying to settle under the 2020 loan charge which were late disclosures but prompted, ie HMRC had already opened up and enquiry similar to yourself, HMRC have suggested to penalty range is between 15-30% of the tax due. Late interest is also added to that. I would strongly suggest you start to gather whatever you have on how you joined the scheme, how you checked it was ‘legit’ and what due diligence you completed.
This is a long drawn out process from here I’m afraid. As some have suggested, HMRC have opened up and enquiry, now the year is open, I can assure you there are a significant number in the same position but there are 2 options available in my opinion;
1. Provide HMRC what they want and sit back and wait and be one of the tax payers that wishes it goes away/forgets about it and let’s interest build up (HMRC seem more than happy to let liability and penalties build up!!)
2. Proactively provide the info, seek appropriate tax advice which will likely mean disclosure of the entire scheme for the year and future years (there is argument you could change 2017 year now 4 years has passed so a discovery could not be made but I suspect HMRC may still try). Work with a tax advisor to calculate what you owe and request HMRC to check/agree calculations to move to a settlement position.
Even getting to a point of agreement with HMRC under point 2 could take a few years! I personally would start to pay what you can on your HMRC tax account to reduce to interest and again it’s linked to your behaviour/cooperation.
if you were earning £1350 weekly (please note these numbers are crude and estimated and are purely for illustration purposes based on your example provided) lets say for 46 weeks a year, I’d roughly say you should have paid £12k a year tax and £5k a year National Insurance but I suspect you might have only paid £1k annual tax if that??
You could probably do the math from there. HMRC have charged interest at roughly 3% each year give or take 0.25%. The level of penalty is the biggest unknown.
One thing I would check is whether the loan is written into Trust or not. If it is, there could be IHT implications also.
I echo comments from other members here. Absolutely shocked these practices dare continue and quite clearly the consequences of operating them are not suffice to put the scheme owners off. I would personally name and shame the umbrella and associated accomplices if agencies or promoters were involved. The number of colleagued tied up in this is purely shocking and there are many more than need the warning. Posting the umbrella/agencies names here gives those that do some level of due diligence before they join by searching the internet and opportunity to hear your story!! Also, please don’t tell me this practice is ongoing in the NHS still or Financial Services (I don’t believe you shared your role/industry)?? It’s possible to even question your end employer as under the revised legislation, the end employer has responsibility on the entire supply chain from a tax perspective. There should be appropriate due diligence by them on any umbrella firm they work with otherwise they could also find themselves open to HMRC scrutiny and penalties. I’d be interested to know who your end client is.
You have come to the right place to summarise to help you get through this. I don’t often post as I find it difficult to find the time but I’d genuinely hope the above is informative and supports you. I just hope that you do find the courage to name and shame, it can only help prevent others from falling foul. I already commend you for facing up to what is ahead of you, reality will soon hit your other colleagues whether this year or in 5years time but the longer it takes, sadly the more hard hitting it will be for them.
Keep posting, keep it touch.
J
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