The Finance Bill 2017 contains proposals to introduce new charges for any outstanding loans from disguised remuneration (DR) schemes. The charges will apply to all DR loans made to traders and employees after 5th April 1999 and those that will be outstanding on 5th April 2019. Anyone who is affected by this proposal will be charged tax at their marginal tax rates for 2018/19 on the total amount of the outstanding loans.
The Institute of Chartered Accountants in England and Wales (ICAEW) is concerned about the potential problems that this will cause the public, especially any individuals who were misled when entering such schemes.
The ICAEW has said that introducing charges that can apply to transactions from 20 years ago could force some individuals into bankruptcy. This would serve no purpose, as the government would then be unable to collect tax and could make themselves vulnerable to a challenge under Human Rights Law.
However, the ICAEW has made it clear that it has no sympathy for those who deliberately chose to use a DR scheme. On the contrary, it believes that HMRC should have taken action sooner against the schemes. But, the organisation believes that some taxpayers were misled into using the schemes and did not appreciate what they were doing, and these people should not be harshly punished. Some of these individuals would have only used the schemes because their employers or agencies insisted that they use them if they wanted work.
Many essential workers were paid only a minimum wage, receiving the rest of their earnings in loans. These workers trusted the advice that they were given. The ICAEW thinks that a fairer way of dealing with these individuals is to allow for time-to-pay arrangements and to limit the amount of tax owed to that which would have been payable had the individuals been paid a salary rather than a salary plus a loan.