Contact Us

HM Revenue and Customs (HMRC) has made amendments to its guidance on contractor loan schemes, reinforcing that loans paid to contractors or freelance workers via umbrella companies or trusts are subject to tax in the same manner as any other personal income.

HMRC states that while contractor loan scheme promoters indicate the payment is non-taxable due to it being a loan – and therefore not counting as income – in the tax authority’s eyes the it is no different to normal income as the individual does not pay the loan back and should therefore be taxable.

HMRC warns individuals it will continue to challenge such schemes by issuing accelerated payment notices (APNs) to those where the amount of tax due is in dispute.

The renewed guidance states that if the contractor loan was paid through a remuneration trust, there is a possibility the funds may also incur an inheritance tax liability at some stage. HMRC states that during any investigation into a contractor loan scheme, the authority will ask to see information the individual in question provided to their mortgage company and any other creditors.

The guidance says: “If the income on your tax return is lower than the income on your mortgage application, HMRC may charge you penalties and interest as well as the additional tax you should have paid.”

After Budget 2016, which addressed a multitude of issues related to disguised remuneration, HMRC issued a policy paper on the subject, stating:

“The Government is also committed to ensuring that those who have used these schemes in the past aren’t allowed to get away with it.

“To meet this objective, the Government will introduce legislation to put beyond doubt that all loans or debts from a disguised remuneration scheme will be taxed as earnings if they haven’t already been fully taxed or repaid on or before 5 April 2019.”

For further information, look at HMRC’s ‘Contractor tax: loan schemes can cost you more’ hub page here.

Date published 11 Jul 2016 | Last updated 11 Jul 2016

Choose the right accounting firm for you

Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?

Local business focus icon

Local business focus

We specialise in supporting independent businesses and work with 80,684 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.

Come and meet us icon

Come and meet us

We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 409 locations, meet with us online through video call software, or talk to us by telephone.

Switching is simple icon

Switching is simple

Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.

See how TaxAssist Accountants can help you with a free, no obligation consultation

0800 0523 555

Or contact us