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Prime minister Boris Johnson and his new government are facing renewed calls to postpone the 31 January 2020 loan charge settlement date, ahead of the long-awaited independent review into the controversial disguised remuneration policy being published.
The policy has seen thousands of IT contractors hit with life-changing tax bills, up to six figures in size, relating to work they did up to 20 years ago. It has been the subject of an independent review since September, the publication of which was put on hold until after the General Election.
What these contractors all have in common is they opted to be remunerated for their work in the form of a non-taxable loan, paid out to them by a third-party employee benefits trust (EBT).
According to HM Revenue & Customs (HMRC), these loans were never intended to be repaid so should be reclassified as income and taxed accordingly, with the tax collection agency specifically targeting anyone who participated in this kind of setup between 6 April 1999 and 5 April 2019.
This action is expected to generate £3.2bn for HMRC, and the policy has drawn criticism from far and wide, and from across the political spectrum, as these loan remuneration schemes were marketed at the time as legal and above board for contractors to enrol in.
As previously detailed by Computer Weekly, the policy’s implementation has also given rise to numerous anecdotal reports from IT contractors about how the tax bills they have received from HMRC have left them facing financial ruin, as they have no means of paying what HMRC claims they own.
At the time of writing, there have also been seven suicides linked to the introduction of the policy, as well as personal accounts from the IT contractor community about how these demands for payment, which must be settled by 31 January 2020, are affecting their mental health and well-being.
Waiting for the big reveal
The independent review into the policy was announced by the chancellor Sajid Javid in September 2019, with the intention of ascertaining if the policy is the most appropriate way for HMRC to clamp down on the “disguised remuneration” that these loan-based remuneration schemes are said to enable.
The review process, which is being overseen by former National Audit Office (NAO) chief Amyas Morse, was due to conclude in November 2019, but – in light of the resultant delay – there have been calls from contractors and MPs alike for the settlement date to be postponed for at least six months.
Steve Packham, Loan Charge Action Group
Now, with the election out the way, the Loan Charge Action Group (LCAG) – which has been actively campaigning for some time now for the policy to be scrapped – has issued a renewed call for the settlement date to be suspended so the contents of the review can be mulled over properly.
“We now await the report of the Morse review, and the government must implement the recommendations and must also suspend the 31 January declaration date so the review and recommendations can be properly considered and put in place,” said LCAG spokesperson Steve Packham in a statement to Computer Weekly.
The group spent much of the pre-election period calling on candidates to commit to supporting its cause, with 85 of the MPs who succeeded in being elected all agreeing to lend their weight to the campaign.
“We congratulate all supportive MPs re-elected and look forward to working with them to end the loan charge scandal,” added Packham.
A number of IT contractors have privately told Computer Weekly, in the wake of the election, of their hope the review could be made public now within a matter of days.
Loan charge review release ‘days away’
Manchester-based tax advisory firm PMTC emailed its client base, many of whom are contesting their own loan charge cases, in the wake of the General Election result to advise them that the results of the review could be published as soon as today.
“We believe there is going to be a small cabinet shuffle on Monday [16 December]. Once that is completed we should see the review almost immediately afterwards,” the email stated.
Dave Chaplin, ContractorCalculator
“We do know for a fact that the review offers/recommends changes. This is not speculation, but what we don’t yet know is what those changes are.”
Speaking to Computer Weekly, Seb Maley, CEO of IR35 tax consultancy Qdos Contractor, said, with the political uncertainty of the pre-election period now addressed, it is only right the new government turns its attention to giving the IT contractor community some clarity on where they stand on the loan charge.
“With some political certainty at last, you would hope the government is now well-placed to prioritise the publication of the loan charge review and, ultimately, introduce any of its recommendations quickly,” he said. “The review itself mustn’t drag on. Thousands of contractors’ livelihoods rest on the outcome of it.”
Dave Chaplin, CEO and founder of the IT contracting authority, ContractorCalculator, holds a similar view, and expressed hope that the review would provide some positive changes to allay the concerns of those whose lives have been so badly affected by the loan charge policy so far.
“In terms of changes, it’s hard to believe that nothing will be done, so we should expect to see some positive changes to ensure those caught up in it are treated more fairly than they have been to date,” he added.
Read more about the loan charge and IR35
- Thousands of IT contractors are at risk of financial ruin as HMRC pursues them for tax it claims they owe on work they did up to two decades ago and were reimbursed for via loan remuneration schemes. Computer Weekly investigates.
- Thousands of IT contractors are being pursued by HMRC for “life-changing” tax bills for work they did up to 20 years ago, as part of a disguised remuneration clampdown known as the loan charge policy. One of those affected anonymously shares his take on what it’s like to live with a six-figure tax demand hanging over you.
- Contracting groups and trade associations say prime minister Boris Johnson must deliver on his party’s pledge to review the IR35 reforms and allay fears that it was an empty promise made to secure votes.
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