Loan charge under review: Second inquiry into controversial contractor tax policy announced

Victims of mis-selling

It’s further claimed contractors were also reportedly told they would be unable to work for certain end-hirers unless they agreed to be paid in loans. For this reason, the contractors now being pursued by HMRC for backdated income tax payments claim they are victims of mis-selling, and facing financial ruin for agreeing to be part of an arrangement that trusted sources assured them was safe and compliant to participate in.

The situation has prompted calls from a 200-strong group of cross-party MPs for HMRC to stop doggedly pursuing the individuals involved, and instead direct its enforcement efforts towards the employers, agencies and scheme promoters who advised people these setups were safe to use.

Given the amount of time that has passed since contractors took part in these schemes and HMRC began its Loan Charge enforcement action, tracking these parties down could prove difficult, as many of these firms and individuals have since disappeared from the market.

Since the policy’s introduction, there has been talk of legal challenges being mounted – to overturn the policy – and campaigns, calling for the government to write off some of the tax amounts that are owed by contractors.

As confirmed by the government in its statement about its plans to place the policy under independent review, the Loan Charge legislation remains in force, and any repayment settlement plans contractors have in place with HMRC must be honoured until the outcome of the review is known. “HMRC will consider what updates need to be made to relevant guidance once the government announces further details about the review and once the review has concluded,” the government said, in its statement.

At the time of writing, no further details have been forthcoming from the government about what shape this independent review will take, or who will be tasked with overseeing it.

Computer Weekly contacted HMRC for further details, but was told HM Treasury would be fielding questions on the Loan Charge review. At the time of writing, though, no response to Computer Weekly’s questions had been received.

Second time lucky

This will be the second independent review the policy has been the subject of, with the first appearing in December 2019, after months of delays. 

Dave Chaplin, CEO of contracting authority ContractorCalculator, said a new review into the inner workings of the Loan Charge is “most welcome”.

“The human cost of this heavy-handed and poorly implemented policy cannot be overstated,” he said. “HMRC must be held accountable for this punitive, retrospective tax, which has had devastating consequences, with some affected individuals tragically taking their own lives due to the immense pressure.”

The first Loan Charge review was overseen by ex-National Audit Office (NAO) chief Amyas Morse, and was focused on ascertaining if the policy was the most appropriate way to tackle disguised remuneration.

In the immediate aftermath of its publication in December 2019, the government announced a couple of amendments to the loan charge policy, including one that pledged to write off the tax bills of 11,000 people previously caught in its scope.

It achieved this by cutting 11 years off the original 20-year period the policy covered, and by cancelling the Loan Charge for any individuals who previously disclosed to HMRC that they participated in a scheme on their tax returns if the agency failed to act on this information.

Repayment terms

The review also prompted the government to revise the policy’s repayment terms by making it possible for those in-scope to pay back what they owe over several tax years instead of one.

While these amendments were initially welcomed by contracting market stakeholders, once the dust settled on the December 2019 review, misgivings about its contents began to surface, with tax advisers and contractors claiming the proposed changes did not go far enough.

Some six months after the review dropped, in June 2020, a cross-party group of MPs – operating as the Loan Charge All-Party Parliamentary Group (APPG) – claimed its contents had been subject to “outside interference” by HMRC and the Treasury, which the latter denied in a statement to Computer Weekly at the time.

Meanwhile, campaigners from the Loan Charge Action Group (LCAG) have been calling for all retrospective elements of the policy to be removed for years, and in a statement, its spokesperson, Steve Packham, said this second review into the policy must be “genuinely independent” and take a much broader look at how the fallout from the Loan Charge came to be.

On this point, Packham said LCAG is keen for the review to touch on how the IR35 off-payroll rules fuelled the emergence of loan-based remuneration schemes at the turn of the century, and also HMRC’s treatment of contractors caught up in the Loan Charge.

“It is hugely positive that the Chancellor, Rachel Reeves, has made good on her promise to commission a fresh, independent review of the Loan Charge,” he said. “We thank her and James Murray for this and for actually listening to those whose lives have and are being ruined by the Loan Charge scandal.

“This fresh review must be genuinely independent and this time must look at the whole issue, the role of IR35 legislation, the entire contractor supply chain and the misconduct and failures of HMRC,” said Packham.

“There must now be a pause in related HMRC activity, to allow for the review to be established and to then properly examine the whole scandal, leading to a fair and final resolution for the thousands of families affected.”

Computer Weekly asked HM Treasury if there were any plans to pause HMRC’s Loan Charge enforcement activity as the finer details of the review are worked out, but no response was received at the time of publication.

For now, it remains to be seen what form this review will take, but it’s safe to assume the tens of thousands of people living under the long shadow of the Loan Charge will be watching and waiting with interest.