Around 15,300 individuals and 6,600 employers have settled their use of a disguised remuneration scheme with HM Revenue and Customs since 2016, according to chief executive, Jim Harra.
Treasury committee chair, Harriett Baldwin, wrote to HMRC requesting further information on the loan charge and the department’s approach to tackling disguised remuneration tax avoidance schemes.
Baldwin asked for information on the scale and demographics of those who used schemes caught by the loan charge and progress on settling debts.
In response, Harra recounted that, in addition to those who have already settled with HMRC, around 40,000 individuals and 5,000 employers have not settled with HMRC.
Additionally, a further 1,200 taxpayers are currently discussing a settlement with HMRC.
Loan schemes - otherwise known as ‘disguised remuneration’ schemes - are used to avoid paying income tax and national insurance.
The loan charge works by adding together all outstanding loans and taxing them as income in one year.
The result is that a person likely to pay tax at higher rates than they would have at the time they were paid in loans.
If a person settles their tax affairs before the loan charge arises they will pay tax at the rates for the years they received the loans, according to HMRC.
Costs
Harra provided insight into the costs for settlers, with the median settlement being £19,000 for individuals and £205,000 for employers.
The highlighted amount covers taxes, interest, and penalties due.
However, Harra clarified that HMRC does not expect anyone to pay more than half their disposable income after living expenses up to £3,000 per month.
This expenditure deducted in calculating disposable income includes household bills and other reasonable expenses such as gym memberships, healthcare plans, and private school fees.
Baldwin, said: “Many of my colleagues have raised concerns about the implementation and management of the loan charge by HMRC.
“As a committee, we believe it was important that we got answers both for our fellow MPs and their constituents.
“I hope the information contained in Mr Harra’s response makes a useful contribution to the public debate.”
Current investigations
Harra stated that a number of individuals are currently under criminal investigation by HMRC for offences linked to disguised remuneration schemes subject to the loan charge.
However, there have been no prosecutions of individuals for the promotion and/or operation of disguised remuneration schemes.
Harra also spoke on HMRC’s strategy to tackle the promoters of disguised remuneration schemes, stating the bearing down on the promotion of tax avoidance is a “key element” to reduce the marketing and take up of tax avoidance schemes.
“Our work has led to more than 20 organisations promoting tax avoidance leaving the marketplace entirely and when others start up, we use our powers quickly to shut down their schemes too,” Harra stated.
“HMRC uses a wide range of legislation and tools to challenge promoters and other entities in the avoidance of supply chain.
“This includes investigations into the income tax and corporation tax affairs of the main players.”
