Affecting 50,000 taxpayers, the 2019 loan charge comes into effect on Friday 5 April amid a storm of controversy.
Read on for the latest developments in the fiercely fought debate between leading politicians, lawyers, and professional bodies on one side and the Treasury and HMRC on the other.
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Are you affected by the 2019 loan charge? Tell us about your experience in the comments below.
What is the 2019 loan charge?
The loan charge is a charge the government is introducing on unpaid loans that contractors received instead of salary payments.
It’s a way for the Treasury to recoup what it sees as unpaid National Insurance and income tax from such schemes, which they call ‘disguised remuneration’.
A number of self-employed contractors in the 90s and 00s were paid in loans, so as to lower their tax burden – a practice which was legal at the time. HMRC has only started clamping down on these schemes since 2010.
In a Financial Times report, Financial Secretary to the Treasury Mel Stride says even if you were badly advised by a tax avoidance scheme promoter, you’re still ultimately responsible.
A charge for those loans from up to 20 years ago will now be added on 5 April 2019 (unless contractors have come to a settlement arrangement with HMRC), with all outstanding loans added together and taxed as income in one year.
Read more details on the backdated payments demanded via the loan charge in our previous article.
MPs and the Treasury at loggerheads
For some time, a range of different groups have voiced their concerns over the fairness of the loan charge, including more than 140 MPs from different parties, peers from the House of Lords, leading lawyers, and professional and tax accounting bodies.
In this latest spike of constroversy Chancellor Philip Hammond received a letter from a group of cross-party MPs. They’d called for a delay to the charge, but the Treasury rejected it in an official report published last Tuesday.
Loan Charge All-Party Parliamentary Group (APPG) Chair Sir Ed Davey said: “The Treasury report fails to deal adequately with the widely-held view that the loan charge represents a change in the tax law for past years – and offends against the rule of law.
“The loan charge is retrospective in many aspects and sets a dangerous precedent as an attack on long-standing taxpayer protections.”
Treasury accused of making false statement
Further to this, the MPs have accused the Treasury of making false claims about the loan charge in that report. The argument is over taxpayer submissions sent by the APPG to HMRC for their consideration and response, to which the tax authority didn’t respond.
Chair of the APPG Sir Ed Davey said: “It is disgraceful that the Treasury have published a false statement in their dreadful whitewash report into the loan charge. We agreed, in person and in writing, to send taxpayer submissions to HMRC and they agreed to write to us about them. We did exactly what we said we would. They reneged on what was agreed and failed to write to us at all in response.”
But HMRC says it didn’t have “sufficient” consent to be able to respond to the individual taxpayers. The Treasury commented: “As you would expect, HMRC is bound by a statutory duty of taxpayer confidentiality, and express written permission from the individuals concerned would be required in order for HMRC to comment.”
However, according to the Financial Times, the APPG’s letter to HMRC stated: “The individual taxpayers have given permission to share their submissions with HMRC.”
Severe human impact
More worryingly, there are reports that the loan charge is having a serious impact on people’s lives. A report in the Financial Times says many have gone so far as to sell their homes to pay their bills.
What’s more, around half of the 1,800 people surveyed by the APPG said they were at risk of going bankrupt.
In fact, the impact of the loan charge has been so severe that it’s been linked to a number of suicides. In the most recent case, HMRC itself reported a suicide case to the Independent Office for Police Conduct, which investigates serious complaints involving HMRC.