Historical concessions to ‘draconian’ Loan Charge 2019 welcomed, broadly
One of the most disliked, divisive and “draconian” tax rules ever to hit the freelance sector has been “significantly amended,” removing its retrospectivity for tens of thousands of contractors.
The Loan Charge, unveiled by HMRC in 2016 to land individuals backdated bills as far back as 1999, will no longer apply to people who used a 'disguised remuneration' scheme before December 9th 2010.
Also thanks to the Morse Review, which HMRC has now agreed to accept, anyone who disclosed to the Revenue that they used such a scheme before the charge was unveiled is exempt too.
Ahead of an analysis for ContractorUK of the changes, WTT Consulting says the disclosure must have been full however, and HMRC must have not opened an enquiry, nor issued an assessment.
WTT’s Tom Wallace adds that where "voluntary restitution" was made to HMRC, and the new criteria applies (meaning the charge no longer will), scheme users who entered into agreements to settle post-March 2016 will be due refunds.
Outlining the raft of changes – last night described as ‘concessions to a still-catastrophic piece of legislation,’ HMRC said those of its customers remaining within the charge’s scope were now eligible for a three-year payment plan.
“Time to Pay arrangements are to be extended and the 'loans' can be reported over three tax years rather than just one year,” says former tax inspector Carolyn Walsh.
“This represents one in the series of minor changes to the Loan Charge following the Morse Review, but it could avoid some taxpayers being taxed at the higher rates.”
'Mitigate the damage done'
Chris Bryce of IPSE also sees the upside, because from its inception, the Loan Charge has been “a catastrophe” for contractors. In fact, seven people have committed suicide over it.
“To mitigate the damage done by the Loan Charge…[HMRC will now be] exempting loans before 2010 and declared loans between 2010 and 2016,” he reflected.
“It is also excellent news that the government has said that contractors can opt to spread repayments over three years [from 2018/19 to 2020/21].”
'Closed years prior to 2016 no longer caught'
Steve Packham of the Loan Charge Action Group, a lobbyist whose volunteers have had to become triage to people suicidal over HMRC’s demands via the charge, is also pleased.
“We welcome that it’s now been accepted that it is wholly unacceptable for this retrospective law to apply as far back as 1999, which was disgraceful,
“And [we welcome] that closed years prior to 2016 will no longer be subject to the Loan Charge.”
Mr Packham added: “These are things that clearly undermined the rule of law. However we continue to believe that the Loan Charge should not apply retrospectively at all and are concerned that many people will still be seriously impacted.”
'Litigation or settlement'
Sounding similarly aware of ongoing impacts, WTT reminded that where a tax year is 'open,’ the taxpayer still needs to resolve the underlying arrangement.
“[Taxpayers can achieve this resolution] either by litigation or settlement, regardless [of] if caught by the loan charge or not,” Mr Wallace said.
The tax advisory was among those who gave evidence to Sir Amyas Morse, as was Sir Ed Davey, the now joint caretaker-leader of the Lib Dems and Loan Charge APPG chair.
“At last we have the news that the draconian Loan Charge legislation is to be significantly amended in Parliament next year,” Mr Davey said.
“There are welcome and significant changes, yet I still believe there remain injustices which will need further changes, including the removal of all aspects of retrospection.”
On LinkedIn, one user agreed, posting. “Any law needs to be prospective not retrospective. [The Loan Charge] remains retrospective and it still does not tackle tax avoidance.”
'Cold comfort for most'
The former tax official, Ms Walsh, echoed the disappointment: “The [Morse] recommendations will be cold comfort for most people, who were hoping that the requirement to repay unpaid tax would be quashed somehow.
“A slight reduction in the eventual tax bill and extended time to pay arrangements is how this pans out for most users of those schemes,” she said.
The ‘next steps’ for HMRC customer groups affected by the charge, or the concessions, have been outlined by the tax department, which says it is unable to process any refunds until the Morse recommendations are incorporated into the Loan Charge legislation.
Initial estimates indicate that up to 37,000 taxpayers will qualify for the concessions; 21,000 thanks to the three-year payment plan; 15,000 thanks to the ‘December 2010’ concession and 1,000 thanks to the ‘2010-16 declared’ concession.