The Loan Charge was introduced in the Finance (no. 2) Act 2017 and is a charge on all payroll remuneration through loans made since 1999, in the form of a 45% charge on all loan payments in that time. This charge is levied as a back tax and demanded by HMRC in one tax year, 2019-2020. Anyone who has ever been employed through such as structure will be hit with a retrospective charge in the 2018-19 tax year in one go, meaning huge and wholly unaffordable bills.
Loan remuneration arrangements were – and still are – legal, hence being recommended by accountants and approved by lawyers. Users of arrangements were not challenged by HMRC at the time.
The Position of the Loan Charge and Taxpayer Fairness APPG
The Loan Charge and Taxpayer Fairness APPG believes that loan remuneration arrangements should be subject to taxation from the point of the introduction of legislation, i.e. prospective from 16th November 2017, and that the Treasury should then clearly outlaw their usage.
The main concerns of the APPG are firstly the retrospective nature of the Loan Charge legislation, which overrides tax law of the time and statutory protections for taxpayers, by allowing HMRC to going back further than time limits allow to claim tax; and, secondly, the impact the Loan Charge will have on those facing it, which is a cause for concern for all Group members and for the majority, if not all, MPs with constituents facing the Loan Charge.
The House of Lords Economic Affairs Committee Report
The House of Lords Economic Affairs Committee Report, ‘Treating Taxpayers Fairly’, published on 4th December 2018, said they were given “disturbing evidence” on the Government’s approach to the Loan Charge. It noted “reports of increasingly aggressive behaviour towards taxpayers by HMRC”, leading the Committee to conclude, “We were disturbed to hear accounts of HMRC threatening individuals with arrangements that could result in bankruptcy, where individuals clearly have no assets to settle liabilities. Whether these threats were explicit or perceived, they have caused considerable anguish for a number of individuals”. The House of Lords Economic Affairs Committee Chair, Lord Forsyth of Drumlean, also concluded that, “The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry” and recommended urgent reform to the Loan Charge.
New Clause 26 in the Finance Bill
Aware of the level of concern in the House of Commons, at Report Stage of the Finance Bill on 8th January 2019, the Government accepted a cross-party New Clause (NC26) tabled by Sir Edward Davey MP with the support of 38 MPs from across the political spectrum. NC26 called for a review of the Government’s controversial 2019 Loan Charge. For NC26 to be ‘in order’ and selected by the Speaker, it had to be associated with the bill as drafted, and hence was done in way that compares time limits for offshore matters. The Government had failed to table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill. This was, therefore, the only amendment that could be tabled.
The Treasury committed to conduct a review of the Loan Charge (in comparison with time limits for offshore matters) and report to the House of Commons by 30th March 2019.
The Loan APPG called for this review to be genuine, to consider external evidence, to properly assess and estimate the number of bankruptcies and the impact of people and to look at ways to avoid the serious adverse consequences, considering all options including reforming the Loan Charge. The APPG conducted an inquiry to run alongside the Treasury review and the Government confirmed (at a meeting between Sir Ed Davey and the Chancellor on January 31st) that they would accept the Report as evidence to include as part of their review.