What is disguised remuneration?

Disguised remuneration is a form of tax avoidance that pays a worker’s income indirectly in an attempt to avoid income tax and national insurance contributions. One example of this would be the loan scheme.

What is a loan scheme?

A loan scheme is a method of tax avoidance that pays a worker’s salary through loans from a third-party company (such as an offshore trust, for example). These loans aren’t intended to be paid back, so HMRC sees them as taxable income.

To combat the loan scheme, HMRC have given users of the scheme 3 choices for repaying the tax they owe:

• Pay back all the loans that were taken out
• Agree a settlement with HMRC over the tax that they are due for the amount of time the scheme was being used
• Pay a loan charge on all loans starting 5 April 2019

The 2019 loan charge is a tax charge introduced by HMRC with the aim of recouping unpaid taxes from loan scheme users. The loan charge applies to outstanding loans made after 6 April 1999.

Who does it affect?

According to HMRC’s estimates, the loan charge will affect up to 50,000 individuals. This includes workers in many professions including consultancy, construction, medical services and teaching.

This topic is discussed in great detail on HMRC’s website.