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Loan charge review results: Government agrees to policy amendments to cut tax bills of 30,000 people

The government has announced a package of amendments to the loan charge policy that will remove 11,000 people from its scope, and cut the tax bills of 30,000 others

The government has agreed to amend its controversial loan charge disguised remuneration policy, and – in the process – written off the “life-changing” tax bills of 11,000 previously caught within its scope.

The policy is geared towards clamping down on disguised remuneration by targeting 50,000 individuals, many of whom are IT contractors who opted into schemes that remunerated them for work they did between 6 April 1999 and 5 April 2019 in the form of a non-taxable loan.

These loans were arranged and managed by third-party, employee benefit trusts (EBTs) which marketed these schemes as compliant with UK tax law, and – in many cases – they were operated in plain sight of HMRC.

However, in the 2017 Budget, HM Treasury set out plans to recoup the tax it claimed scheme participants avoided paying during the 20 years to 5 April 2019, as these loans were never intended to be repaid, so should be reclassified as income and taxed accordingly.

The amount of tax owed is known as a loan charge, and for many individuals caught by the policy, the amounts HM Revenue & Customs (HMRC) was seeking from them has been described as “life-changing” and up to six figures in size, and were due to be paid by 31 January 2020.

However, the government has now agreed to cut the amount of time the policy covers by 11 years, so that the loan charge is now only applicable to people who participated in schemes from 9 December 2010, and no longer applies to those who previously disclosed their involvement in the schemes to HMRC on their tax returns if the agency failed to act on this information.

Furthermore, the government has also agreed to allow those still within scope of the policy to defer filing their tax returns and paying their loan charge liabilities until September 2020, and split the balance owed over three tax years to make their bills more affordable.

Read more about the loan charge and IR35

The changes are in response to the publication of a long-awaited independent review into the policy by ex-National Audit Office chief Amyas Morse, geared towards ascertaining if the policy – in its previous form – was the most appropriate way to tackle disguised remuneration.

Particularly in light of the news that seven suicides, only four of which the government has formally acknowledged, have been linked to the policy, and reports about the dire impact it is having on the health and well-being of those affected by it.

The government claims the changes will result in 11,000 people being released from their loan charge obligations altogether, while a further 30,000 are likely to see the amount of money they owe to HMRC reduced.

Jesse Norman, the financial secretary to the treasury, acknowledged in a statement the concerns raised by the public about the policy’s impacts, and said plans are now afoot to take action against the promoter of these schemes too.

The latter is significant, as one of the major criticisms of the loan charge policy in the past has been that it has failed to take into account that many participants felt they were effectively “mis-sold” the schemes they signed up for, because promoters marketed them as HMRC-compliant.

“There have been important public concerns about this policy, and that is why we commissioned this report and have responded so quickly to it,” said Norman.

“The changes we are making go to the heart of Sir Amya’s concerns about the fairness and the application of the loan charge, which he accepts in principle.”

Fraught week

The emergence of the reforms comes at the end of a fraught week for those affected by the loan charge, as concerns mounted that the review may not surface this side of the Christmas break.

The government has also faced mounting parliamentary pressure in recent days to release details of the review, and any action it would take in response, with several MPs from different parties writing to the chancellor, Sajid Javid, calling for the review’s immediate release.

With the loan charge review concluded, it appears the government will now be under even more pressure to make good on its pre-election pledge to undertake a review of its plans to extend the IR35 tax avoidance reforms to the private sector from April 2020, which it is feared could result in a second wave of loan charge-like victims in the years to come. 

Dave Chaplin, CEO of IR35 consultancy ContractorCalculator, described the recommendations as “reasonable”, but has misgivings about whether or not they go far enough.

“It is very surprising that the review is encouraging the roll-out of the damaging Off-Payroll (IR35) Tax to the private sector in 2020, which will ironically stoke the take-up of more of these types of schemes. IR35 was, and still is, the primary catalyst for these schemes and an urgent halt to the reforms and a review is required,” he said.

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