Credit systems for contractors (or as the government calls them disguised compensation agreements) have many forms – but the underlying structure is that a self-employed or contracted person signs an employment contract with an employer or an EBT (labour benefit fund) that is normally outside the jurisdiction of the United Kingdom. The employer then pays the contractor tax-exempt “loans” – which appear on paper as loans, but must never be repaid. In return, the system provider accepts a percentage of the contractor`s income as “administrative costs.” Whatever your views on HMRC`s retroactive measures towards loan system users, it should be clear that the risks associated with the application of tax evasion rules far outweigh the long-term benefits. Anyone who works as a freelancer or entrepreneur must be extremely careful when it comes to a system that advertises an unrealistic share of income as a take-out wage – even if these systems are covered by existing legislation, the measures taken in the area of lending systems prove that HMRC can treat them as tax evasion and impose penalties at an indeterminate point in the future. It is also argued that retroactive legislation – that is, legislation that declares past events illegal if authorized by law at the time – is unfairly punished against persons who acted in good faith and under the law of the day. Indeed, many contractors were required by the contractors who hired them to operate under such systems. It is generally accepted that the contracting loan schemes came into force in response to the IR35 legislation introduced in 1999, which used the payment of public sector workers as contractors – with all the tax advantages it brought them – while being “disguised” workers. In short, the legislation provides that in labour agreements that cannot be distinguished from those of permanent employees, contract workers must pay tax at the same rate as these workers – even if they have worked through a limited company, an umbrella company or a third-party agency. Since the increase in loan schemes for contractors, HMRC has taken decisive action against users of such agreements – retroactive legislation was introduced as early as 1999 to cover transactions involving people trapped in the network up to 100% of the tax avoided (as calculated by hmrc). The agreement will support overdrafts and loans of up to $250,000 for a minimum of three years and a maximum of seven years. The applicant is not able to meet a bank`s normal credit needs for a full-rate loan, but would be considered viable in the long term despite the effects of COVID 19 in the short to medium term.
If you are currently using a credit program (which is unlikely, as the operators of these systems have been largely deterred by the strong measures taken against them), warn that HMRC does not seem to accept a defence related to naivety, ignorance or deception – if you have personally avoided controlling income, your motivations will not be taken into account. As might be expected, HMRC is only very attached to these rules.