Some arrangements describe payments for work as “loans” or “advances” rather than salary, aiming to defer or reduce tax. These are known as Disguised Remuneration schemes.
HM Revenue & Customs (HMRC) considers these schemes tax avoidance. Payments are treated as normal income for tax purposes, and HMRC has successfully challenged many cases.
These schemes are often used by contractors, offshore workers, and individuals paid through trusts or umbrella companies. Typically, a portion of income is paid as salary, with the rest issued as a “loan” that is rarely repaid. HMRC treats these loans as taxable income, and the Loan Charge may apply to bring them into charge in a single year.
Potential consequences include additional Income Tax, National Insurance, interest, and penalties. However, notifying HMRC and settling liabilities voluntarily can reduce penalties and avoid further action.
If you think you may have been involved in such a scheme, we can guide you through reviewing your situation and resolving it with HMRC. Please contact us via our Contact page for assistance.