HM Revenue & Customs (HMRC) is allowing contractors to pause their Loan Charge settlements until the government's independent review of the controversial tax policy has concludedComputer Weekly has learned.
The retroactive tax policy forms the central tenet of HMRC's clampdown on disguised remuneration schemes, with the government tax collection agency claiming the Loan Charge policy could generate up to £3.4bn over five years for the Treasury in unpaid income tax.
Specifically, the policy is targeting contractors who between 9 December 2010 and 5 April 2019 participated in loan-based remuneration schemes, which saw them reimbursed for the work they did in non-taxable loans, rather than a conventional salary.
The roll-out of the policy has resulted in tens of thousands of IT contractors being saddled with life-changing tax bills, as HMRC claims these individuals participated in these schemes to artificially minimize their income tax liabilities.
There have been numerous reports of contractors in-scope of the Loan Charge facing financial ruin, and the policy has also been linked to at least 10 suicides to date.
The plight of those affected by the Loan Charge has attracted the support of more than 200 cross-party MPs, banding together under the Loan Charge and Taxpayer Fairness All-Party Parliamentary Group (APPG).
The group penned a letter to Treasury Secretary James Murray, dated 9 October 2024following up on a meeting he had with various parties impacted by the Loan Charge in August 2024.
financial burden
The letter shines a light on the level of financial burden the loan charge is placing on people, with one individual caught in-scope of the legislation quoted as being told by HMRC in 2017 that they owed £60,000 in unpaid tax – but that sum has now risen to £500,000.
The letter also flags the cases of some other individuals, who participated in the meeting with Murray in August 2024, who HMRC has calculated owe between £200,000 and £300,000 in Loan Charge liabilities. Previously, HMRC has claimed a typical Loan Charge settlement is in the region of £13,000.
“In all eight cases [presented to Murray]the individuals cannot possibly pay the sums being demanded,” the APPG letter stated. “They simply do not have the money HMRC is demanding of them. This, of course, means that the HMRC figures of how much they will collect from the Loan Charge and associated activity is completely spurious, as it is impossible for them to collect anything like this amount, when people simply cannot pay.”
The amounts of money HMRC claims from people affected by the Loan Charge is one of several reasons why the policy has proven so controversial.
The policy's retroactive nature is another, as many of the individuals who are now being pursued under the terms of the Loan Charge claim the schemes they participated in were recommended to them by trusted tax advisors and chartered accountants.
“Four of the witnesses [participating in the meeting with Murray] were placed into umbrella companies through their agencies and the umbrella companies recommended that they use the arrangements now subject to the Loan Charge,” the APPG letter continued.
,[Another] four witnesses had chosen to work through umbrella schemes because of concerns about the IR35 legislation … As with the vast majority of those affected by the Loan Charge, these are not people who set out to avoid tax … they all used the schemes because they wanted to be compliant with the law. All of these people had taken and then followed professional advice, from either their work agencies or trusted advisors – which included chartered accountants, as well as accredited advisors.”
independent review
At the end of October 2024, several weeks after the APPG wrote to Murray, the UK government confirmed during the Autumn Budget an independent review of the policywith the intention of bringing the fallout from the policy to a close, would take place.
This will be the second time an independent review into the policy has been undertaken by the government, with the first being published in December 2019,
At the time of writing, HM Treasury – the government department tasked with overseeing the review – has yet to confirm details of when the second review will start, how broad its terms of reference will be, and who in government will be responsible for leading it. .
Computer Weekly understands, though, that HMRC has already started offering contractors caught in the Loan Charge's scope the opportunity to request a pause in their settlement payments until the review's outcome is known.
However, this stance has only been communicated to contractors who have contacted HMRC directly, prompting calls for the agency to make it more widely known to the thousands of people affected by the Loan Charge that this option is available.
An IT contractor, who spoke to Computer Weekly on condition of anonymity, said: “They should be letting all those victims affected by the Loan Charge know what their options are.”
An HMRC email, seen by Computer Weekly, states the government agency has “not yet been instructed to” pause settlements for those affected by the policy, but has “been asked to accept customer requests to pause current settlement activity” pending the outcome of the review.
The email also advises those considering requesting a settlement pause to “consider making a payment on account” to HMRC to “reduce or stop further late payment interest being charged”.
The email added: “Any payments made will be refunded with repayment interest, if the review later [concludes] the tax owed does not need to be paid.”
Computer Weekly contacted HMRC for clarification on its decision not to make it widely known that it is offering contractors the opportunity to pause their settlements, but was told all press queries relating to the Loan Charge should be directed to the Treasury.
In response, a spokesperson for the Treasury provided the following statement: “We recognize that concerns continue to be raised about the Loan Charge. The government will honor its commitment to hold an independent review of the Loan Charge to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers.”
public appeal
In the wake of the Autumn Budget 2024campaigners from the Loan Charge Action Group (LCAG) publicly appealed to HMRC to pause its enforcement of the policy until the government concluded its latest review of the policy.
LCAG spokesperson Steve Packham said, given the personal toll the policy is taking on those in its scope, it is “unfair for some people's cases to be put on hold and not others”.
Speaking to Computer Weekly, he said: “Now that the government has announced they will commission a fresh review of the Loan Charge, it is vital that Treasury ministers announce that all related taxpayer cases and associated HMRC action will be put on hold until the review. has concluded and reported.
“The fact that the government has commissioned this review reflects the serious concerns about the controversial Loan Charge and HMRC's approach, that has led to ten suicides,” said Packham. “It is unthinkable for this same approach to be allowed to continue whilst an independent review is taking place.”