Sergey Nivens -

Loan charge: Government dashes hopes of revised down settlements for contractors

HMRC and HM Treasury confirm there are no plans to alter the loan charge settlement terms, despite calls from cross-party MPs to consider doing so

The UK government has no plans to soften the settlement terms on offer to IT contractors caught by its controversial loan charge policy, despite calls for HM Revenue & Customs (HMRC) to consider revising down how much it expects individuals hardest hit by it to pay.

The calls come in the wake of an abortive bid earlier this month by MPs to get a late-stage amendment made to the Finance Bill that would have ushered in changes that could have seen thousands of people fall out of the policy’s scope.

As detailed by Computer Weekly at the time, the proposed changes – which were focused on largely eliminating the retrospective elements of the policy – failed to win the support of MPs in the House of Commons.

In response, the cross-party Loan Charge All Party Parliamentary Group (APPG) is calling on the government to consider revising the policy’s settlement terms, as thousands of people in its scope have no means of paying the life-changing tax bills it has landed them with.

The policy, introduced in November 2017, is pitched by HMRC as means of recouping the employment taxes it claims thousands of people avoided paying previously by opting to be remunerated for work they did in the form of non-taxable loans.

In HMRC’s view, these loans were never intended to be repaid and should now be taxed accordingly as income.

Initially, the policy sought to clamp down on individuals who were paid in this way at any point during the 20 years to 5 April 2019, leaving those in scope of the policy facing huge retrospective tax bills as a result.

Following the publication of an independent review into the policy in December 2019, the look-back period for the policy has been effectively cut in half, on the basis that – according to the accompanying report – the law on using loan schemes only became clear in 2010.

Since then, there has been a repeated push by anti-loan charge campaigners to have all retrospective elements of the policy removed, but these efforts have largely failed to date.

In a statement, Loan Charge APPG co-chair Mike Penning MP, reiterated his group’s opposition to the retrospective nature of the loan charge, and restated its view that all retrospective elements of it should be scrapped.

However, it is also of the opinion that now is the time for the government to consider an alternative means of bringing the loan charge matter to a close for the tens of thousands of people affected by it.

“We will continue to raise the loan charge scandal and to scrutinise the actions of HMRC, and we will continue to do all we can to speak up for those facing the unjust loan charge”
Mike Penning MP, Loan Charge APPG co-chair

And this would involve allowing people to reach a “realistic, voluntary settlement offer” with HMRC, whereby these individuals pay back a percentage of the “disputed tax” as a “full and final settlement”, freeing those affected to get on with their lives.

“Such an approach would prevent the many bankruptcies which we expect [as a result of the loan charge] and would actually be likely to bring in more revenue than the current unreasonable and punitive approach,” said Penning.

“So we urge the Treasury to consider this, or there will be many people who simply cannot pay, with all the consequences that means for them and their families.”

He added: “We will continue to raise the loan charge scandal and to scrutinise the actions of HMRC, and we will continue to do all we can to speak up for those facing the unjust loan charge.”

When asked, however, about the possibility of offering those affected by the loan charge an opportunity to reach a reduced settlement, representatives from HMRC and the Treasury said there were no plans to alter the repayment terms for the policy.

“We published settlement terms in November 2017 and many customers have already concluded settlement on this basis. We are continuing to contact and work with people who expressed an interest in settling their disguised remuneration tax avoidance, so they can conclude settlement and not have to pay the loan charge on 30 September 2020. There are no plans to change these settlement terms,” said HMRC and the Treasury in a joint statement.

“We have a strong track record in helping people pay what they owe in a manageable way. For those wanting to settle their disguised remuneration use, HMRC will agree a manageable payment plan. There is no maximum limit on how long someone can be given to pay what they owe, and this will be based on our assessment of people’s income and expenditure.”

Change in strategy

Even so, the reduced settlement approach is one that many of the IT contractors Computer Weekly has spoken to are open to pursuing, in light of the aforementioned failed Finance Bill amendments.

One IT contractor, who asked not to be named, said they would be happy to pay back 10% of the total disputed tax they owe in the interests of “finally” bringing the matter to a close.

“Although this would not help everyone [caught by the loan charge], and there seems no option to now do that, it would minimise the harm,” the contractor said.

“It would avoid many bankruptcies, home losses and potential family tragedies, given the policy has been linked, to date, to at least seven suicides.”

The approach would enable HMRC to make back at least some of the money it claims to be owed, whereas – under present conditions – many people within the scope of the loan charge have no means of paying the full amounts the government agency is pursuing them for, the contractor added.

Furthermore, it would go some way to acknowledging the fact that many people who entered into loan remuneration setups did so in good faith, after being recommended to do so by reputable tax experts and scheme promoters who assured them the schemes were legal to use.

At the same time, HMRC has come under fire previously for failing to take action against schemes during the original 20-year look-back period the policy covered.

“Many people want to fight on and take [the loan charge matter] to court, which could mean it goes on for years, costing many people and the taxpayer money. If lost, the amounts owed could be much more than they are now”
IT contractor

“A settlement like this recognises that not all ‘blame’, if there were any, is on the individuals and there is shared responsibility with the promoters and HMRC [for people getting entangled] with loan schemes,” the contractor added.

Another IT contractor, speaking to Computer Weekly on condition of anonymity, said the settlement idea has been broadly welcomed within the private WhatsApp groups and online forums where those campaigning against the policy meet. However, there are still a number within these groups who would be bankrupted if asked to pay back even 10% of their total loans.

“Many people want to fight on and take [the loan charge matter] to court, which could mean it goes on for years, costing many people and the taxpayer money. If lost, the amounts owed could be much more than they are now,” the contractor added.

“I personally could just about afford a 10-30% total settlement sum, and I know many others who would also be happy to see the back of this for similar percentages.”

Computer Weekly understands a separate campaign organisation, known as the Loan Charge Settlement Group, has emerged in recent weeks to support individuals keen to seek a resolution to the policy along these lines. However, its representatives declined to participate in this article.

Despite HMRC and HM Treasury claiming the settlement terms will remain as they are, certified tax accountant Gordon Berry said there was still potential for change to be forced on this point.

“Now [post-Finance Bill] we are left with almost no cards to play if people want better terms but do not want any part of risky, lengthy, expensive litigation with no certain outcome at the end,” he said.

“Nonetheless, it might just be possible for supportive MPs to bring enough pressure to bear to get fairer settlement terms than have been proposed by HMRC so far.”

Read more about the loan charge

Read more on IT consultancy

Data Center
Data Management