An MP has blasted the 2019 loan charge - which applies retrospective fees on umbrella arrangements - as immoral and unfair.
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Stephen Lloyd MP has said that thousands of independent nurses, doctors, teachers, contractors and freelancers “could be made bankrupt because of the retrospective tax measures”.
What is the 2019 loan charge?
Contractors will be familiar with IR35, which was designed to tackle ‘disguised employment’. Some sought safety from IR35 using arrangements that involved tax loopholes.
But the tax authority has been closing these technical loopholes since 2010 and, in 2017, the Finance Bill introduced a 2019 charge on disguised remuneration.
Will you be hit by a fee?
If you have an outstanding loan from an arrangement like an Employee Benefit Trust on 5 April 2019, it will be treated as taxable remuneration. Unless you repay the loan or settle with HMRC, you’ll need to pay the tax charge.
Under the charge, the loan is treated as taxable income in the year of charge. It’s triggered on any outstanding loan balance that has built up over the last 20 years.
The charge paid depends on the specifics of each case, but it can include income tax at a percentage of the balance and National Insurance contributions.
If you’ve benefited from such a scheme, you should discuss your options with your adviser.
Is it simply a ‘quick fix’?
Stephen Lloyd MP believes this “quick fix” is “unfair and draconian” because it’s retrospective and targets hard-working contractors, rather than the firms who ran the schemes or the professionals who recommended them. The schemes were even approved by top accountancy firms for a time.
And, even though the schemes were used openly and HMRC didn’t start closing its loopholes until 2010, the charge applies to loans going back as far as 1999.
HMRC is also targeting contractors and freelancers with Accelerated Payment Notices (APNs) that don’t come with any right of independent appeal.
Contractors face six-figure bills
With many contractors facing six-figure bills, Lloyd has been speaking with people who are afraid of losing their homes and livelihoods.
“People who acted in good faith are being punished for the Government’s own imprecise legislation, which enabled agencies and tax advisers to take advantage of loopholes and flourish off the backs of honest contractors,” Lloyd says.
And with the Treasury claiming in March 2011 that tax law can only be applied retrospectively in ‘exceptional circumstances’, Lloyd fails “to see how an arrangement that was used for 20 years by tens of thousands of people is in any way ‘exceptional.’”
Will the government revise its legislation?
Lloyd has introduced a motion to Parliament that aims to minimise damage to independent contractors and freelancers in the UK.
It calls for the loan charge to only be applied to those entering disguised remuneration schemes after the 2017 Finance Bill had Royal Assent.
The motion has cross-party support from the likes David Davies and Tim Farron. Graham Webber, from advisory firm WTT Consulting, said: “This is a pivotal moment in the campaign to find a sensible and fair settlement.”
With the campaign starting to gain traction, watch this space to see how it develops.
The loan charge is complex and if you’re affected by it, you should seek professional advice.
Have you or has anyone you know been affected by the loan charge? Tell us your story in the comments below.