Government warn contractors about failed attempt to avoid loan charge

• Government publish Spotlight 50 which sets out complex Personal Service Company (‘PSC’) arrangement designed to avoid the April 2019 loan charge
• HMRC’s view remains – schemes claiming to avoid the April 2019 loan charge are tax avoidance and do not work
• Spotlight 50 shines a light on the following arrangement;
  • Contractors providing services through their own PSC
  • Both contractor and the PSC become partners of a limited liability partnership (“LLP”) based offshore
  • PSC bills end user for the contractor’s services and the PSC then pays the contractor a salary at or around the National Minimum Wage rate
  • PSC transfers remaining amount of the payment from the end user to the LLP which informs the contractor how much money they can draw on their capital account with the LLP
  • The contractor has not contributed any capital to the LLP and so the money drawn from the account is called as a loan for the purposes of the loan charge
  • Majority of shares in the PSC are then sold to an overseas holding company linked to the scheme promoter in an attempt to cancel overdrawn capital accounts
  • The value of the shares is artificially fixed at an amount which will extinguish the balance of the loan

Aspire Comment

Spotlights 36, 39 and 49 warn of schemes and arrangements that claim to avoid the disguised remuneration loan charge.

Spotlight 50 sets out a very detailed explanation of how HMRC believes this particular arrangement works and confirms that HMRC’s view is that this arrangement merely tries to disguise the use of loans by transferring assets rather than making a genuine repayment of the loan amount.

The Spotlight states that this arrangement has been deliberately designed to attempt to avoid the loan charge.

The Spotlight advises that anyone using these schemes should withdraw and settle their tax affairs to avoid the cost of investigation and minimise interest and, where applicable, penalty charges on the tax that should have been paid.

The Treasury also published its review of the loan charge, find our news here.