News added on 05.03.2019

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Disguised remuneration

HMRC publishes guidance on loan charge reporting

HMRC has published guidance on how to report details of a disguised remuneration loan scheme and account for the loan charge liability. How should you report your employees' disguised remuneration?

What is disguised remuneration? A disguised remuneration loan scheme is where your employee has been paid for services with a loan that is unlikely to be repaid. Individuals that have not repaid the loan or arranged a settlement with HMRC by 5 April 2019 will be required to pay income tax and NI on the outstanding balance. The tax charge has been dubbed the "loan charge". The loan charge also applies to employers that used the schemes.

How is the loan charge calculated? The first step is to calculate how much of the loan is outstanding on 5 April 2019. Only genuine repayments made before this date can be deducted. The remaining balance is treated as income received on 5 April 2019 and is therefore taxable in 2018/19. 

How should the loan charge be reported? Any outstanding disguised remuneration loans must be reported to HMRC before 1 October 2019. Reporting is via HMRC’s online service which is not available until 6 April 2019. Each scheme used should be reported separately. Employers that paid employees disguised remuneration should report and pay the loan charge on their behalf via PAYE. Where the employer no longer exists, or is not based in the UK, the individual must report and pay the tax via a self-assessment return.

Tip. Where the employee no longer works for you, ensure they repay the loan charge to you by 5 July 2019. Otherwise the payment of tax is a taxable benefit in kind.

HMRC’s guidance can be found here https://www.gov.uk/guidance/report-and-account-for-your-disguised-remuneration-loan-charge.

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