Does the April 2019 Loan Trust Charge affect you?

There are some key dates looming in April which need to be borne in mind if you have outstanding loans with your company, and which fall under H M Revenue and Customs (“HMRC”) disguised remuneration schemes. These include employee benefit trusts (“EBT’s”) and contractor loan schemes, to name but two.

Opportunities for settlement are now very time constrained and you must have signed a settlement agreement before 5 April 2019 or you may be hit with a PAYE and NI charge in April 2019 which will be payable by 19 May 2019.

Don’t bury you head in the sand – take advice now! Leaving it until later could well increase the cost and impact to you.

If you are a limited company and have used EBT planning or contractor type arrangements you should be aware that there may be an impact on your 2019 profit and loss account following a settlement with HMRC. This is because the employer’s National Insurance will be a cost to the company. You may think that’s not such a problem as this may typically be, say, 10% of the total settlement figures, but that is the smaller issue…

The other element to be aware of is that the large part of the settlement relates to the director’s personal tax and National Insurance. Not only could you have a direct tax bill due to your personal tax profile for past years being recalculated, but also a further liability for the PAYE and NI element which the disguised remuneration rules say that the company should have deducted on each payment. It may be manageable for the company to pay this sizeable figure from reserves or from other means but this is, in HMRC’s view, going to trigger a further liability where the director does not make good this sum!

Of course, this can be set against a director’s loan account but if the balance on that account is insufficient to absorb this amount then the loan account will go overdrawn. This will trigger a 32.5% tax charge which the company must pay nine months after the year end. You have several options to correct this including voting a dividend to offset this hit but do you have sufficient reserves to justify the said dividend?

You may decide you are not going to ‘make good’ this amount and indeed let the company pay the amount on your behalf which will then trigger the additional tax on the tax as it is effectively similar to a benefit in kind, a concept which you will no doubt be familiar with. The problem with taking this route is that you now have a substantial charge of the whole settlement figure to allocate to your profit and loss account as well as this additional tax on this tax. So can your profit and loss reserves suffer this hit or will you now be trading whilst insolvent?

As you can see this situation is highly complex and there are several different inter-related issues in play. If you haven’t addressed this and you are not aware of the options available then you should take advice. Liquidating your company and walking away isn’t necessarily going to be a solution as in many cases HMRC will pursue you personally.

We work with tax specialists who will be able to help you decide on the best course of action for you and your company

If you are affected by the above then please get in touch as time is short.