Offer loan charge contractors a 10% tax rate, chancellor urged

An HMRC dispute advisory signalling to ContractorUK that a low tax rate of 10% could bring about a fair conclusion to Loan Charge 2019 has clearly not gone unnoticed by MPs.

In a letter to the chancellor, members of the Loan Charge APPG say HMRC should invite individuals to pay an income tax rate of 10% on loan balances as a “full and final settlement.”

Not only would this allow “many” contractors caught by the charge a chance to reach an “affordable” settlement, but it would also let HMRC collect some of the tax it says is owed.

“Even though, as you know,” add the MPs in their letter to Rishi Sunak, “this has never been legally proven.

“We [also]…urge a delay of the Loan Charge declaration from the end of September 2020 to the end of January 2021, to allow a reasonable period of time for settlements to be agreed.”

'Pragmatic'

Shown the letter to Mr Sunak, loan charge expert Brian Burke said yesterday that the MPs’ demands appeared to be reasonable.

“It’s a considered, pragmatic approach…[that] recognises and appreciates the wide range of issues affecting those who have found themselves caught [by the charge],” said Mr Burke, a director at Quantuma.

“[However], there is now very limited time in which to delay the Loan Charge declaration date [of September 30th 2020], which appears to be the first step [that the MPs want the chancellor to take].”

'Disguised remuneration'

Under the APPG’s ‘10%’ proposal, which featured in its 2019 review and was floated by peers in 2018, the rate would be for all users of what HMRC calls ‘disguised remuneration’ schemes.

So it would cover all loans received via a contractor loan arrangement from 6th April 1999 to 8th December 2010 (inclusive), where HMRC has protected the tax year in question.

It would also apply to all loans received via a contractor loan arrangement on or after December 9th 2010 to the effective date of settlement, for both protected and unprotected years.

'Acknowledges the reality'

But interest would still be payable to the Revenue, albeit only up to the date that the taxpayer registered their initial interest in settling with HMRC.

“This proposal acknowledges the reality of who actually benefited from the loan arrangements and acknowledges that is wrong to be demanding all the disputed tax from individuals,” Mr Sunak is told in the APPG’s letter.

“It takes into account that most of the benefit was received in the form of fees taken by those who recommended, promoted and operated the schemes. It works on the principle that individual taxpayers should pay a proportion of the disputed tax, acknowledging that they did benefit.”

'Contractors could put this all behind them'

At Quantuma, Mr Burke reflected: “A rethink along these lines would undoubtedly mean thousands of contractors could actually achieve resolution and look to put this all behind them.”

“[Please] seriously consider the settlement proposals put forward by the All-Party-Parliamentary Group,” Labour MP Jon Cruddas said yesterday.

Writing his own letter to the chancellor, the APPG member added: “In light of the covid-19 pandemic and its unprecedented impact on our economy, the government should be looking at ways to mitigate the number of individuals facing bankruptcy and businesses closing down.

“A delay of six months could make all the difference, helping to avoid much of this damage which would undoubtedly lead to many job losses. I therefore urge you to do the right thing. Support the APPG settlement proposals and allow people facing the Loan Charge in these uncertain times to move on with their lives.”

'Punitive'

Trying to head off potential reasons which Mr Sunak might give for not supporting the proposals, the APPG said a tax lawyer has advised that legislation is not needed for either the six-month delay or the 10% rate to be introduced.

Tom Wallace, director of tax investigations at HMRC dispute advisory WTT Consulting, which has long endorsed such a low tax rate to resolve the Loan Charge mess, said last night: “We have always said that they [HMRC’s settlement terms] are punitive and make settlement unaffordable for the vast majority of those that are affected. 

“Anything that helps those hard-working individuals who wish to settle but are currently unable to is welcome.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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