Disguised remuneration / loan charge

[LK2725]

Hello everyone. I’ve been sent a large tax bill for 2016-2018. I was with a dodgy umbrella company who paid me in ‘loans’ for 18 months which later HMRC decided was a form of tax avoidance scheme (disguised remuneration/ loan charge). Can I prove to HRMC how much tax I owe (it certainly is not the amount they said!) without tax solicitor? I have a P45, P60, some payslips to bring the £ down? I am happy get legal help but not sure if I have a case?

I am waiting for HMRC to get back to me with their calculations and go from there.

[DealorNoDeal]

Are you (a) settling or (b) paying the loan charge? This greatly affects the calculation of what you'll have to pay.

[LK2725]

Not sure what a loan charge is? Not been chased for that. I intend to settle with HMRC.

[DealorNoDeal]

Not sure what a loan charge is? Not been chased for that. I intend to settle with HMRC.

If you are settling a year, then you can work out the underpayment as follows.

Add up all the loan payments you received in that year (L).
Note the total salary you received in that year (S).
Note the amount of PAYE tax you already paid (TP).

Enter your Gross Income for the year (L+S) into this tax calculator.
https://www.uktaxcalculators.co.uk

Note the Tax Due (TD). The amount you've underpaid is TD-TP.

In addition to tax, you will also be charged late payment interest. (If you were an employee, on PAYE, then there shouldn't be any additional NI.)

[interestedparty]

Are you (a) settling or (b) paying the loan charge? This greatly affects the calculation of what you'll have to pay.

Do we have a choice between settling, and paying the loan charge? in my case I have closure notices issued to me for 2013 to 2017, based on overdrawn capital account payments received, and for 2019, based on a totally unverifiable figure for the balance of the overdrawn capital account provided by the operators of the scheme. Aside from any debates as to the fairness of the loan charge, surely it would constitute being taxed twice on the same amount if I was to be taxed on both the loan charge (2019) and for the individual yearly remittances which make up that balance (2013-2017)?

[Chevalier]

Do we have a choice between settling, and paying the loan charge? in my case I have closure notices issued to me for 2013 to 2017, based on overdrawn capital account payments received, and for 2019, based on a totally unverifiable figure for the balance of the overdrawn capital account provided by the operators of the scheme. Aside from any debates as to the fairness of the loan charge, surely it would constitute being taxed twice on the same amount if I was to be taxed on both the loan charge (2019) and for the individual yearly remittances which make up that balance (2013-2017)?

The loan charge was brought in to “encourage” settlement, with a condition that if settlement hadn’t been agreed by a certain date then the loan charge applied.

The 2020 settlement terms indicate you have to pay the loan charge, then HMRC will consider whether you need to pay anything over and above this for previous years (residual tax)

I don’t think you will pay anything less than the loan charge if you have not settled.

[interestedparty]

The loan charge was brought in to “encourage” settlement, with a condition that if settlement hadn’t been agreed by a certain date then the loan charge applied.

The 2020 settlement terms indicate you have to pay the loan charge, then HMRC will consider whether you need to pay anything over and above this for previous years (residual tax)

I don’t think you will pay anything less than the loan charge if you have not settled.

Thanks for the info., it confirms my worse fears. If the loan charge is payable, as opposed to settling the individual years, then would I still be able to elect to spread it over three years? And also, do you think I would have a strong basis for arguing that the loan charge should be based not on the unverified figure provided by the promoter, but on HMRC's calculations for the individual years remittances from the promoter to me, as these payments represent reality, not the promoters figures?

[interestedparty]

Thanks for the info., it confirms my worse fears. If the loan charge is payable, as opposed to settling the individual years, then would I still be able to elect to spread it over three years? And also, do you think I would have a strong basis for arguing that the loan charge should be based not on the unverified figure provided by the promoter, but on HMRC's calculations for the individual years remittances from the promoter to me, as these payments represent reality, not the promoters figures?

Update - I've just realised the option to spread over 3 years is no longer available, although I can make a late request - the odds on this being accepted seems unlikely.

[Chevalier]

Thanks for the info., it confirms my worse fears. If the loan charge is payable, as opposed to settling the individual years, then would I still be able to elect to spread it over three years? And also, do you think I would have a strong basis for arguing that the loan charge should be based not on the unverified figure provided by the promoter, but on HMRC's calculations for the individual years remittances from the promoter to me, as these payments represent reality, not the promoters figures?

The loan charge is based upon the value of loans or similar arrangements outstanding in 2019 (NB just the principal sum)

If there were any loans (or similar) made between 2010 or 2019 these would be rolled up into the loan charge regardless of whether an investigation or discovery was made - unless of disclosure to a very high standard was made. This might be a reason why the assessed values may be different.

if there’s still an unexplained difference appeal and discuss with HMRC. Failing that you always the option to appeal to the tax tribunal system

[bylren001]

If you are settling a year, then you can work out the underpayment as follows.

Add up all the loan payments you received in that year (L).
Note the total salary you received in that year (S).
Note the amount of PAYE tax you already paid (TP).

Enter your Gross Income for the year (L+S) into this tax calculator.
https://www.uktaxcalculators.co.uk

Note the Tax Due (TD). The amount you've underpaid is TD-TP.

In addition to tax, you will also be charged late payment interest. (If you were an employee, on PAYE, then there shouldn't be any additional NI.)

Just wanting to make sure if the same calculation would apply if I was trying to estimate my liability from using one of these dodgy umbrella companies. There are three potential liabilities PAYE, Employees NI, Employers NI. If HMRC transfer the liability to me will I be liable for all three?