Government Announce Review into Loan Charge Levied on Tax Avoidance Schemes

HM Treasury yesterday announced that it was launching an independent review into the controversial Loan Charge which was intended to tackle a particular form of tax avoidance. Impacting upon self-employed contractors across a range of industry sectors including business services and construction, the Loan Charge has seen affected taxpayers face tax bills of hundreds of thousands of pounds in some cases.  David Redfern, tax preparation specialist and Managing Director of DSR Tax Claims Ltd welcomed the review into the Loan Charge, which has been blamed for the suicide of a number of taxpayers, highlighting that HMRC intended its initial approach to be sympathetic to the affected taxpayers.

Introduced in April 2019, the Loan Charge was intended to crack down on tax avoidance through the use of Disguised Remuneration schemes. These schemes had been in operation since the 1990s and were intended to allow taxpayers, such as contractors who used limited company set-ups, to take their income as a loan which would be subject to a lower rate of tax. Additionally, the loans were not intended to be paid back but rolled-over into further loans. When introducing the Loan Charge, those who had used the scheme were encouraged to contact HMRC prior to its roll-out in order to receive more favourable repayment terms. However, the Loan Charge has proved controversial, with the average tax demand being in excess of £100k. Redfern stated “One can only imagine the shock of receiving a tax bill for such a huge sum and the resulting reports of stress, anxiety and even suicide in some cases is both concerning and yet not surprising. At the time of its introduction HMRC stated its intention to treat those sympathetically, correctly realising what a strain on mental health and family life such a financial demand was going to make – however, continuing controversy makes the scheme seem untenable in its current form”.

In announcing the review on 11th September 2019, the Chancellor Sajid Javid appointed Sir Amyas Morse, formerly of the National Audit Office (NAO) to oversee the independent review. It has been asked to consider whether the Loan Charge is the most appropriate way of dealing with Disguised Remuneration schemes. Redfern added “That the review is to report back to government by mid-November in order to give clarity prior to the January Self Assessment deadline is to be welcomed due to the strain caused by this Loan Charge. HMRC is, of course, wholly within its remit to tackle tax avoidance and is right in its assertion that tax avoidance schemes are unfair to those taxpayers who fulfil their full tax liabilities without attempting to avoid their obligations but there should be a common-sense and sensitive approach to the nearly 50,000 taxpayers affected by the Loan Charge. The accompanying stress and anxiety affects not only the taxpayer but also spreads outwards to affect their family and wider community as well as the contractor sector as a whole”.

While the review is underway, the Loan Charge remains in force although there are suggestions that it will be scrapped as a result of the findings of the review. Redfern stated “One must query whether a more reasonable option would have been to suspend the charge while awaiting the findings of Sir Amyas Morse’s review. Many of the taxpayers affected by the Loan Charge were under the initial impression that what they were doing was legal and indeed, this was how these schemes were often marketed to self-employed taxpayers. That is not to say that tax avoidance should be ignored – it is vital for our fiscal system that everyone pays their fair share – but in order to be able to accurately take stock of the situation and  determine whether it is an appropriate method of recouping this unpaid tax, it would be more sensible to suspend the Loan Charge”.

Sir Amyas Morse’s independent review of the Disguised Remuneration Loan Charge is due to report back to HM Treasury by the middle of November 2019.

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DSR Tax Claims Ltd (company registration 11459292) are a firm of tax rebate specialists serving clients nationwide. DSR Tax Claims are tax preparation experts who specialise in identifying potential allowable expenses for tax rebates for clients. Their specialist team can help employed and self-employed subcontractors with all relevant paperwork to ensure their claim is handled in an accurate and efficient manner.

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