Exchequer Secretary to the Treasury, James Murray MP, has announced an independent review of the disguised remuneration loan charge to be led by Ray McCann, former President of the Chartered Institute of Taxation (CIOT).
The Loan Charge was brought in to curtail the use of specific tax avoidance schemes that sought to avoid Income Tax and National Insurance by disguising remuneration as loans.
The government promised a new review in the Autumn Budget 2024. There are complex and long-standing problems with HMRC’s policy and settlement concerning loan charge liabilities.
According to its terms of reference, the review seeks to provide a ‘fresh perspective’ and further scrutiny. It will focus on what can be done in those cases that have been put in the ‘too difficult drawer’, i.e. those that have yet to resolve tax liabilities under the loan charge.
It is thought that thousands of loan charge cases have reached an impasse between taxpayers and HMRC over the terms of agreement for liabilities. Others have stalled concerning the negotiation of payment. Some taxpayers have suffered undue hardship because of the inflexibility of HMRC's debt collection strategy.
Exchequer Secretary to the Treasury, James Murray said, "Today, we honour our commitment to launch an independent review of the Loan Charge, bringing the matter to a close for those affected while maintaining fairness for all taxpayers."
Ray McCann added, "The controversy surrounding the Loan Charge has for too long acted as a barrier to bringing matters to a close for both the individuals involved and for HMRC.
I was pleased to be asked to help find ways whereby those involved can reach an agreement with HMRC that balances their right to be treated fairly with the expectation of the vast majority of taxpayers who have paid all of the tax and NIC due on their earnings. My review will be entirely directed to that end."
Loan charge campaigners will be disappointed that there is no remit for Mr McCann to consider repealing the Loan Charge rules, as the government confirms that it, "Believes that it is right that those who did not pay the right resolve amount of Income Tax and NICs are required to resolve their affairs with HMRC. Accepting otherwise would be contrary to decisions of the courts."
In terms of a brief background to the tax schemes that the loan charge aimed to break:
- Tax-avoiding disguised remuneration schemes spread quickly via contractor forums and a growing tax avoidance industry from at least the mid-1990s.
- By 2017 the schemes had been largely defeated in litigation through the courts and tribunals. The Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax.
- In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for Income Tax is that of the employee.
- The loan charge was introduced in 2016 as an effective sledgehammer to deter avoidance and force taxpayers to settle their tax arrears.
- One of the most controversial aspects of the loan charge is that these tax avoidance schemes ran for decades. It took that long for HMRC and the government to realise the scale of the problem and legislate to prevent it. Many of the taxpayers affected find the solutions unfair and they argue that they were simply following the advice of their advisers at the time.
This is the second review of the loan charge. The first review was made in 2019 by Lord Morse. A settlement opportunity was offered in 2020.
Useful guides on this topic
Disguised remuneration loan charge (subscriber guide)
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
FAQs for Disguised Remuneration Settlements
Can I just repay my loans? Which is cheaper: the loan charge or settling? How much will it cost to settle? And many other FAQs.
Disguised Remuneration final settlement opportunity
An overview of the 2017 settlement opportunity for those involved in disguised remuneration schemes. What are the potential liabilities? What is the settlement process?
Disguised remuneration 2020 settlement opportunity
What is HMRC's position on disguised remuneration loans outside of the Loan Charge? Is there still a tax liability? Can this be settled?
External links
Press release: Independent Loan Charge Review announced.