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The basics of the loan charge for Birkenhead businesses

The loan charge 2019 is one of several measures HMRC is introducing to try to clamp down on what it sees as illegitimate tax avoidance. The charge is intended to recoup money that small businesses avoided paying in tax through the use of loan schemes.

Not all businesses and contractors in Birkenhead will be liable under the new charge, but an area that is home to its own BID and the Woodside Business Park is such a hotbed of business activity, that some inevitably will be.

What is the loan charge 2019?

The loan charge 2019 is a change to the tax system in this country that is targeted at those companies and individuals who used what are being called ‘disguised remuneration schemes’ to reduce their tax liabilities.

The charge will require all of those who used one of these schemes to repay a sum in back taxes calculated by HMRC, with the deadline for this repayment being January 31 of next year.

What is a disguised remuneration scheme?

A disguised remuneration scheme is a way of reducing National Insurance and income tax liabilities by receiving payments for work completed in ways that conceal the fact that it is taxable income.

The usual method is to receive these payments indirectly, via a limited company that you have set up, in the form of a loan that will never actually be repaid. When used by those who run their own sole trader contracting firms, they are generally called contractor loan schemes.

Why is the loan charge so controversial?

One of the reasons why the loan charge 2019 has caused so much controversy is that many contractors are stating that they were encouraged to enter into such schemes by their financial advisors and assured that they were legal, but are now facing huge penalties as a result.

Another reason is the decision by HMRC to backdate the loan charge to April 6th 1999, which means that those deemed liable under it are expected to pay back 20 years’ worth of unpaid income tax and NI by the start of next year. Some contractors are claiming that this will bankrupt them.

Contacting HMRC and speaking to a reputable accountant in Birkenhead, or wherever you are based, are among the courses of action that those affected by the loan charge 2019 are being advised to take.

Posted by Mark
July 12, 2019

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