Contractors must pay the income tax and NICs on all their relevant loans and other payments on a net receipt basis meaning that the heavy fees paid under the scheme will be tax deductible.
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However, self-employed contractors, including those operating through partnerships, will need to pay the Class 2 and Class 4 NICs on loans and payments and will also be required to make voluntary restitution payments where HMRC is out of time. For example, when an amount is contributed to the scheme initially and then, again, at a later date when the April loan charge arises.
Helpfully, the statutory provisions rather than HMRC guidance prevent such double tax arising in respect of the same income. Perhaps Mel Stride and other retrospective tax deniers should note that this is the same income. Similarly, the April loan charge legislation also allows credit for amounts paid under the APN regime. Temporarily ignoring any other relevant attacks, the legislation is clear.
One stands at a fork in the road.
Independent Contractor/Consultant Agreement (Pro-Client) | Practical Law
Do you repay the loan or do you suffer the April loan charge? A valid choice presented by the legislation. This is because it is money that could be used by me again in the future. Even if, in the worst cases scenario, that income proves to be taxable when I choose to use I will at least be able to control the tap. That said, it is clear that those funds can be used for commercial opportunities and retain the IHT attractions of the trust at the same time. Firstly, if one has received an APN then this presents a practical problem. My view here is that, sooner or later, one is going to have to hand over some of your cash.
This is regardless of whether it has just plopped through your letter box or you are involved in a complex judicial review. Most were taken by surprise by the ruling including, I think, HMRC which has, to an extent, rendered the April loan charge redundant. Indeed, the ruling presented HMRC with a legal principle on which to collect cash without relying on the pernicious and retrospective loan charge.
However, settlement, and failing that the April loan charge, are an easier and preferred route. My understanding is that such notices are now being issued. One will be clear by 5 July at the latest as to whether one is at risk of receiving one of these notices. HMRC has 12 months to issue following the ruling which was 5 July It should be noted that if this does arise, one will not have to pay tax in relation to any closed years. This beats the settlement opportunity and also the year look back on the April loan charge. If one does not have liquid cash then one may have to sell a capital asset or, alternatively, seek finance on the back of such assets.
However , where this is not the case the loan charge will be triggered on any outstanding loan balance that has built up over the last 20 years as at 5 April The April loan charge will be earned income. Where you are a participant in a non-UK scheme then HMRC may seek significant penalties and, as of more recently, may look to take advantage of the new strict liability offence for offshore tax evasion.
This could mean you are brought in front of the Magistrate who will have the power to send you down for six months and impose an unlimited fine between the times it takes from him or her to hear a couple of careless driving offences. Firstly, seek some advice and from someone who understands the legislation and issues thoroughly.