If you work as a contractor or freelancer and use one of the umbrella companies on the market using loan schemes as a way of income extraction strategy then take note.
What’s the issue?
Just type contractor payments in google search bar and you will be bombarded by promoters who make claims that they can help individuals take home as much as 80% to 90% of their income. Sounds too good to be true, that’s because it is.
HMRC considers this to be tax avoidance and is caught by the disguised remuneration legislation.
So why is this considered to be tax avoidance?
These promoters use schemes to reduce the amount of tax you pay on your income by making payments which purport to be ‘loans’ from a trust or a company. Normally, a contractor would receive the contract income directly and pay tax on it. These arrangements artificially divert the income through a chain of companies, trusts or partnerships and pay the contractor in the form of a ‘loan’. The ‘loans’ are claimed to be non-taxable because they don’t form part of a contractor’s income.
However, in reality the ‘loans’ aren’t repaid and the money is used by the contractor as if it were his or her income.
HMRC are therefore warning that they will clamp down on such arrangements. See full guidance from HMRC at the following link: