Over 20,000 freelancers and contractors that used offshore-based umbrella schemes to disguise their income over the last 20 years will have to repay an average of £50,000 in unpaid taxes, HMRC says.
Responding to a deadline of 31st May to register earnings held or managed in these trusts, almost 21,000 people had declared their involvement in the schemes with some calculating their unpaid tax bill to be ‘in the hundreds of thousands’. The impact of the impending tax bills may see some facing bankruptcy or having to sell significant assets in order to pay what is owed.
HMRC estimates that in total up to fifty thousand individuals may have used complex loan agreements and off shore trusts to avoid income tax and National Insurance and has subsequently extended the deadline to 30th September, giving more individuals the chance to come forward voluntarily.
Popular around the turn of the century and widely believed to be a legitimate means of reducing income tax, the schemes were primarily used by IT and health sector freelancers and contractors, but you may remember that Rangers Football Club had reportedly used similar schemes to pay players and managers.
Unless the individuals come forward and pay any taxes owed by the deadline, they will face a ‘loan charge’ in April 2019 which may be far higher than the original tax bill and will be collected in one year. Contacting HMRC before the deadline will provide those liable with a greater range of options around repayment and will mean they end up repaying a similar amount to the original tax, potentially over an agreed period.
If you have any questions or think you may need to approach HMRC, please contact us in the first instance for guidance.