New Loan Charge review condemned as a ‘farce’ and a ‘sham’

The government has announced a ‘review’ into the Loan Charge, a controversial measure that retrospectively targets the users of disguised remuneration schemes. But what exactly is being reviewed?

Despite a promising label, commentators have deemed the review a ‘sham’ and a ‘farce’, as it is not set to examine the fairness of the tax measure but merely to remove impediments preventing those caught from paying their debts.

What is the Loan Charge?

The introduction of IR35 in April 2000 sought to clamp down on so-called ‘disguised employment’. For limited company workers caught by IR35, this resulted in a large rise in tax and national insurance liabilities.

As a result, many individuals signed up for schemes that promised lower rates of tax.

These schemes, often recommended by accountants and even claiming to be ‘QC approved’, typically paid contractors via offshore employment benefit trusts (EBTs) in the form of loans.

These loans were never expected to be paid back, allowing users to significantly lower their tax liabilities.

The Loan Charge is retrospective legislation, first announced in 2016. It originally targeted individuals who used disguised remuneration schemes between 6th April 1999 and 5th April 2019.

The subsequent review in late 2019 shortened the review period for users who used these schemes between December 2010 and April 2019. The legislation is estimated to have affected over 50,000 people.

The enormous retrospective tax bills generated by the enforcement of the Loan Charge, plus interest, have left many individuals with unaffordable tax liabilities and enormous stress.

What is the scope of this ‘review’?

Ray McCann, former President of the Chartered Institute of Taxation, will lead a new independent review into the Loan Charge.

Significantly, the review does not aim to determine whether the Loan Charge is fair or not (the government believes it is).

The official announcement cites 2017 and 2020 court decisions:

…and believes it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC.

Instead, the stated aim is to:

…review the barriers preventing those subject to the Loan Charge from reaching resolution with HMRC and recommend ways in which they can be encouraged to do so.

The review will not examine how the charge is applied or HMRC’s role in enforcing the rules.

Nor will it look to extend the scope of the charge to the operators of tax avoidance schemes.

Review labelled a ‘sham’ and a farce’

Commenting on the government’s announcement, Steve Packham from the Loan Charge Action Group said:

What the Government has announced today is not a review at all, as it actually astonishingly excludes reviewing the Loan Charge. It is a complete sham and a betrayal of the promise made by Rachel Reeves last year.

Greg Smith MP, Co-Chair of the Loan Charge and Taxpayer Fairness APPG said:

What has been announced today is not only a farce, but it is not actually a review of the Loan Charge, which is what the Chancellor promised. The supposed review starts by justifying the Loan Charge and it also makes clear that it will not change.