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The government has agreed to review the loan charge legislation by 30 March.
The government agreed to review the loan charge legislation by 30 March after a cross-party group of MPs pushed through an amendment to the Finance Bill. New clause 26 was tabled by Ed Davey (Lib Dem) and signed by 38 MPs.
The charge, due to come into effect in April, targets workers who, rather than being paid a salary, have been loaned money often from an offshore trust or through an umbrella company in the past 20 years.
A House of Lords report from the Economic Affairs Committee published in December criticised the charge, saying HMRC had failed to communicate with taxpayers affected. The report said: ‘HMRC appears to be prioritising recovery of tax revenue over justice by targeting individuals, rather than promoters (who could be considered more culpable), so it can more easily recover liabilities.’
Committee chair Lord Forsyth welcomed the review, saying it must ‘result in meaningful action’. He added that many people affected faced ‘crippling’ tax bills yet they ‘do not earn high incomes and entered these schemes under false assurances that they were legitimate’. He urged the government to remove from the charge all those who told HMRC they were participating in these schemes and to set up a dedicated helpline.
Initially, the amendment sought to remove the retrospective element of the loan charge, but this was scuppered because the government did not table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill.
Welcoming the development, the Low Incomes Tax Reform Group continued to urge low-paid workers affected by the loan charge to contact HMRC to settle. So far, according to HMRC, only 25,500 of the 50,000 people it suspects had their financial affairs managed by offshore ‘umbrella’ schemes have come forward to agree a repayment schedule.
Victoria Todd, head of LITRG team, said: ‘This latest amendment to the Finance Bill … will not necessarily lead to any changes to the law relating to the loan charge and its application from 5 April. Indeed any changes, whether through parliament or a legal challenge, will not stop HMRC seeking to settle any avoidance disputes using other powers available to it in the vast majority of the cases we are most concerned with.’
LITRG has published a series of articles on its website to help low-paid workers understand what is happening and outline their options. The most recent is a question and answer article intended to clarify HMRC’s settlement process.
Steven Porter, partner at Pinsent Masons, said: ‘Settling with HMRC allows taxpayers to avoid the tax charge and make settlement payments over extended time periods. As HMRC has been criticised for being too harsh by a House of Lords committee, we would expect it to take a more lenient approach in agreements.’
He added: ‘HMRC is coming down like a ton of bricks on individual taxpayers, many of whom entered into these schemes in good faith, but there seems to be little focus on the promoters of these schemes.’
Notice of amendment: tinyurl.com/y749qovs; Hansard 9 January col 358: tinyurl.com/y7uvhdzd
