Many contractors used various types of arrangements, often via umbrella companies, which offered to provide a higher than ‘normal’ amount of net income.
Usually these arrangements paid a small amount of normal pay, subject to PAYE and NICs. Then the balance of the invoiced amount would be paid (after fees) as either a loan, or sometimes as ‘ex-gratia’ payments, or sometimes as distributions from a partnership.
Unfortunately, HMRC don’t believe that most of these arrangements work and has been challenging them for a number of years. In brief, HMRC believe that if it looks and smells like pay, it should be taxed as pay.
Where loans are involved, it may be that the now infamous ‘Loan Charge’ creates a tax charge.
While there are many good umbrella companies operating in a completely proper way, sadly a good number of those umbrella companies that sold these type of loan arrangements have now disappeared, or provide little support when contractors ask how they work or what they should do when challenged by HMRC.
We have helped many contractors assess whether the arrangement they are using is legitimate. If not, we have also helped them exit with the least amount of pain. Where a settlement is needed with HMRC, we can usually get significant time to pay.
Where the loan charge comes into play, there can be additional complexity to navigate and it is important, if exiting, to do things in the right order. We’ve helped clients through these difficult waters.
Finally, there now appear to be some unscrupulous companies demanding the ‘loans’ back, adding insult to injury. We’ve helped clients challenge these demands and where necessary introduced them to legal help.
If you have used one of these types of arrangements and are facing demands or questions from HMRC, we’d be happy to speak to you and explain how we may be able to help.