The All-Party Parliamentary Loan Charge Group have written to Chancellor Rishi Sunak on behalf of taxpayers seeking the 30 September 2020 loan charge settlement date to be further delayed until the end of January 2021. MPs have called for the Chancellor to instruct HMRC to soften contractor settlements and to seek a fairer deal for contractors caught by HMRC’s disguised remuneration policy.
The APPG state that the reality of the current so-called ‘settlement terms’ being offered by HMRCare “grossly unfair and punitive”, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount, both in total and in terms of monthly payments
What is the loan charge?
The loan charge is an anti-tax avoidance measure which was introduced by the Finance Act 2017 to recoup losses to the Exchequer from disguised remuneration schemes. The loan 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 face a retrospective charge in the 2018-19 tax year in one go, meaning largely unaffordable bills.
The average amount of tax avoided per person was in the region of £20,000 per annum, with a large proportion of those using a disguised remuneration scheme doing so for more than 1 year. The sums involved clearly leaves at least 50,000 people facing a significant tax bill which could force many into bankruptcy.
What is the position of the Loan Charge APPG?
The Loan Charge APPG argue 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:
- 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,
- 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 APPG Loan Charge Group’s Letter to the Chancellor
The letter was written by the three co-chairs of APPG and state that a delay in the Loan Charge declaration would give HMRC a more “realistic chance” of completing the settlement process.
Despite the misleading impression regularly given, the reality of the current so-called “settlement terms” being offered by HMRC is that they are grossly unfair and punitive, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount both in total and in terms of monthly payments. The payment terms that HMRC are insisting on are often far harsher than those imposed on people guilty of criminal offences such as fraud and theft which, as has been raised before, is indicative of the vindictive way those facing the Loan Charge are treated.
The APPG continue:
The current terms involve penalties and interest (often accumulated over lengthy periods and charged even when HMRC failed to respond in a timely manner). In some cases the terms include Inheritance Tax on the loans which of course contradicts HMRC and the Treasury’s claims that the loans are being treated as income. Overall people are being asked to pay sums far in excess of the disputed tax amount and far in excess of any financial benefit gained by using the loan arrangements. This is not only very unfair to the taxpayer, but it also ignores the large sums deducted by those who promoted and operated schemes and who are not being asked to pay any of the disputed tax.
The letter follows the publication of guidance by HMRC which warned those affected by the policy are expected to have provided HMRC with details on their 2018-2019 tax returns about any outstanding loan charge balance. In HMRC’s view the loan are “never intended to be repaid” and now with loan charge settlements it is now seeking from those who took part in these schemes represent the amount of unpaid tax it claims these individuals owe.
What is “disguised remuneration”?
Disguised remuneration schemes seek to avoid Income Tax and NICs by paying users their income in the form of loans that are never repaid. However, as the loans were never intended to be repaid, they do not differ to normal income and are therefore taxable.
You may have been part of one of these schemes if you worked for someone as a paid: director, employee or contracted worker, and agreed to receive your salary in the form of a loan. Importantly, the understanding would be that this loan would not need to be repaid at any time. These loans are described as disguised remuneration loans.
The most common forms of disguised remuneration in recent years have been Employee Benefit Trusts (EBTs) and unregulated pension schemes known as Employer Financed Retirement Benefit Schemes, both of which have now been identified by HMRC as disguised remuneration schemes.
How does this policy affect Contractors?
It is estimated that tens of thousands of those affected by the policy are IT contractors many of those that have been left with extreme life changing tax bills which can only be paid by falling into financial ruin or bankruptcy.
Due to this reason the Loan Charge APPG and various other campaigning groups have called on HMRC to consider those who have been caught in the policy’s scope to repay a percentage of the total tax they owe.
What we can do for you?
- Review your entire matter;
- Provide expert advice throughout the entire process;
- Represent you in correspondence, interviews and meetings with HMRC;
- Collate and prepare all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and
- Contesting disputed tax assessments and penalties
Instruct Expert HMRC Tax Disputes Solicitors
If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible.
Whether you are an employer, employee or contractor, our expert tax solicitors and barristers can assist you in managing HMRC’s investigation and entering into negotiations by providing comprehensive legal advice and robust responses to the investigators. Our tailored team which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC.
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