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Loan charge: Tax experts call on chancellor for simpler, more affordable policy settlement terms
A group of tax barristers and accounting experts are calling on Rishi Sunak to force HMRC to revise its loan charge settlement terms
A group of tax lawyers and accounting professionals are calling on HM Revenue & Customs (HMRC) to consider introducing simpler-to-understand and more affordable settlement terms for contractors caught in-scope of the UK government’s controversial loan charge policy.
In a letter to the chancellor of the exchequer, Rishi Sunak, the group make the case for HMRC to introduce a disguised remuneration settlement opportunity. This would, it is claimed, “promptly resolve open enquiries” by getting individuals caught by the policy to pay an affordable proportion of the total tax that HMRC claims contractors avoided paying by taking part in disguised remuneration schemes.
As things currently stand, HMRC has reached a deadlock with individuals affected by the loan charge, the letter said, because many of those caught by the policy have no means of paying the often “life-changing” sums of money they are being pursued for.
“The situation between HMRC and affected taxpayers seems to have reached an impasse,” said the letter. “The taxes being demanded often involve life-changing sums, typically multiples of their current annual earnings (if indeed they are still earning). This has resulted in serious financial hardship, often with devastating consequences for affected taxpayers’ lives and livelihoods.”
For this reason, the group said it would be “pointless” for HMRC to continue pursuing those affected by the policy for the total amounts of tax it claims they avoided paying and would only serve to cause them “further hardship and misery” while continuing to generate negative publicity for HMRC.
“Clearly, this is neither in HMRC’s nor the government’s interests, and for the government and HMRC to continue along this path is self-defeating and unsustainable,” the letter added.
The alternative settlement proposal would not, the group stressed, be intended for use by contractors that knowingly enrolled in tax avoidance schemes.
“It is for contractors and freelancers – gig economy workers – many of whom were either inadvertently dragged into these schemes or who were inadequately advised of the risks,” said the letter. “These people are now facing unaffordable and often life-changing tax bills.”
What is the loan charge policy?
Announced in the 2017 Budget, the loan charge policy is designed to help HMRC claw back the money it claims contractors in various industries – including IT – avoided paying in the past by opting to have part of their salary paid to them in the form of non-taxable loans or annuities.
These loan-based remuneration schemes were typically run by offshore employee benefits trusts, and were erroneously marketed as being an HMRC-compliant means for contractors to bolster their take-home pay by artificially minimising their employment tax liabilities.
Thousands of IT contractors who took part in these schemes between December 2010 and 5 April 2019 have since been landed with six-figure tax bills from HMRC through the loan charge policy, reportedly resulting in mass bankruptcies and at least eight suicides.
The retroactive nature of the policy has seen HMRC repeatedly criticised for pushing ahead with it, as well as the fact that its efforts to clamp down on disguised remuneration (DR) schemes are disproportionately targeted at individual participants rather than the organisations that run them.
The “vast majority” of individuals caught in-scope of the loan charge were “genuine victims of mis-selling rather than deliberate tax avoiders”, the letter added, which is why the group is also demanding that HMRC should not insist that access to these revised down settlements is contingent on contractors admitting they were at fault.
“When so many people were mis-sold these arrangements (with some having effectively been coerced into using them as a condition of engagement and others having no knowledge of the fact they were being sold anything at all), we feel that it is wrong to force people to give false admission that they are deliberate tax avoiders,” said the letter.
“We strongly recommend that HMRC and the government consider this recommendation seriously and accept the reality that the proliferation and mis-selling of DR schemes was the fault of several parties other than the taxpayers to whom these schemes were sold, and that the settlement opportunity reflect that reality as part of a fair and final resolution.”
The group confirmed that the proposal has already been presented to the Loan Charge and Taxpayer Fairness All Party Parliamentary Group (APPG) in the hope of securing the support of its 245 members and, in time, the backing of the chancellor and the Treasury, too.
Sarah Gabbai, a specialist tax solicitor and co-ordinator of the proposal, said the group’s proposition works in everyone’s interests. “HMRC have a legal duty to enforce the loan charge, but they know there will be people who simply cannot afford to pay the sums demanded and that for some people, bankruptcy will be inevitable,” she said.
“We also believe it is unfair that taxpayers are being made to pay all the disputed tax, when the majority of people were victims of mis-selling and several other parties were involved and must accept some responsibility for the situation those taxpayers are in.”
Gabbai added: “We hope the Treasury and HMRC will take this proposal seriously and will work towards a fair resolution that gives closure to all and avoids the consequences if nothing is changed. We will work with HMRC, the Treasury, the APPG and others to find a way to resolve this issue and allow everyone to move on.”
News of the proposal comes days after the Loan Charge and Taxpayer Fairness APPG went public with its own letter to Lucy Frazer, financial secretary to the Treasury, which called on her to instigate another independent review into the impacts of the policy, which has been linked to at least eight suicides to date.
The letter also called for HMRC to suspend its enforcement of the policy on the ground that there remains no “relevant or justified” legal basis for it.
Read more about the loan charge
- A document dump of emails shared between HMRC officials has prompted loan charge campaigners to further question the legal footing of the government’s controversial disguised remuneration policy.
- 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.
- HM Revenue and Customs must do more to reduce the exposure of contractors to tax avoidance-focused disguised remuneration schemes, the House of Lords Economic Affairs Finance Bill Sub-Committee has concluded.
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