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HM Revenue & Customs (HMRC) will need to spend £200,000 on enhancing its IT systems to accommodate changes that are set to be made to the government’s controversial loan charge policy.
As previously reported by Computer Weekly, the government has agreed to make a number of changes to the policy, which has seen thousands of IT contractors saddled with six-figure tax bills relating to work they did up to 20 years ago.
What these contractors all have in common is they opted to be remunerated for the work they did in the form of non-taxable loans, typically issued to them by third-party employee benefit trusts (EBTs).
HMRC maintains these loans were never intended to be repaid and introduced the policy in November 2017 to recoup the employment taxes it claims to be owed by the recipients of these loans.
This previously included anyone who participated in these schemes during the 20 years to 5 April 2019. That was until plans were announced in December 2019 to cut the time the policy covers by 11 years, so only individuals who received loans from 9 December 2010 onwards would be affected.
This change was introduced in response to an 83-page independent review into the policy, which sought to determine whether its terms are proportionate, justified and do not risk undermining taxpayers’ rights.
The review made a series of recommendations about how the policy should be amended to ensure the above. As well as cutting the amount of time the policy covers, it also included calls for individuals to be relieved of their loan charge obligations where a “reasonable disclosure” of their participation was flagged to HMRC that the agency then failed to act on.
Further changes include giving loan recipients the option to split their loan balances over three consecutive years in the hope this will make paying their loan charge bills a little easier.
HMRC has now published a draft legislation policy paper confirming its commitment to taking these changes forward, but also revealed that doing so will require a sizeable investment in its own IT systems.
This investment will be necessary to alter the digital forms HMRC uses to capture information about individuals caught by the loan charge policy, and build in capabilities that will enable people to spread their outstanding balances over several years.
“HMRC will need to make enhancements to existing IT tools to enable customers to take advantage of these changes. It is expected these changes will cost in the region of £200,000,” the policy paper stated.
In a written Hansard statement, finance secretary Jesse Norman said an “informal” four-week consultation on the draft legislation for the policy would be opening shortly to feedback from stakeholders.
As detailed by Computer Weekly, the changes the government is planning to make to the loan charge policy have been extensively criticised by tax experts, trade associations and the contractor community since they were first announced on 20 December 2019.
Read more about the loan charge policy
- The IT contractor community shares its verdict on the UK government’s plans to revamp its controversial loan charge policy, which has left thousands of people facing life-changing tax bills and financial ruin.
- 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.
- Concerns raised over re-emergence of umbrella firms targeting IT contractors with loan-based remuneration schemes ahead of the private sector IR35 reforms coming into play.
Read more on IT legislation and regulation
IR35 private sector reforms: Treasury review concludes no delay needed to April 2020 start date
IR35 reforms: IT contractors warned off joining non-compliant umbrellas to avoid loan charge risk
IR35 private sector reforms: IT contractors weigh up their post-April 2020 work options
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