Labour unveils ‘farcical’ loan charge review, claiming ‘independence’
The Labour government has set out terms for what it’s calling an “Independent Review of the Loan Charge.”
To be led by a former president of the Chartered Institute of Taxation (CIOT), the review was promised by Labour at October’s Autumn Budget 2024.
Some tax experts, such as WTT Group’s Rhys Thomas, say it’s “positive” to see Labour now acting on the chancellor’s “commitment”.
A previous “independent” review of the loan charge by Sir Amyas Morse has been widely discredited, as MPs found HMRC “sought to influence it.”
‘Labour’s loan charge review completely misses the point’
The all-clear for the new review; its terms, plus how HMRC will probe loan charge contractors during it, came late on Thursday afternoon.
Qdos initially told ContractorUK that it welcomes the new review, only to add hours later that the remit “completely misses the point”.
Similarly, Professional Passport first told ContractorUK that it backs the review, only to add on Thursday evening that it is “disappointed” by it.
A ministerial statement on the review in the House of Commons on Thursday shows how the contractor tax advisories could have been wrongfooted.
‘Bring the matter to a close’
The statement by the Treasury’s James Murray MP starts very positively, by saying the loan charge review will “help bring the matter to a close for those affected.”
This objective from the Treasury’s exchequer secretary mirrors chancellor Rachel Reeves' October promise, word-for-word.
But Mr Murray went on to say that “those who did not pay” the “right amount” of tax and National Insurance to HMRC are (still) “required” to.
“Accepting otherwise would be contrary to the decisions of the courts, and would be unfair to the vast majority of taxpayers who have never used these schemes,” continued the minister, citing rulings in 2017 and 2022.
‘Very challenging fiscal situation’
Like the ministerial statement, a policy paper on the new loan charge review begins positively.
But other wording by Mr Murray (in an email on Jan 23rd) has the potential to unsettle contractors.
For example, the Treasury minister says the review will find ways to bring the loan charge to a conclusion, but “must…do so in the context of the very challenging fiscal situation”.
Likewise, the review is tasked to produce “targeted solutions that have the minimum possible impact on the public finances.”
‘Fundamental principles of tax system’
And to bring closure for “unsettled and unpaid loan charge populations,” such solutions should “not undermine the fundamental principles of the tax system.”
The Loan Charge was introduced at Budget 2016 but with retrospective effect, as it caught tax schemes as far back as 1999.
Under the Morse Review, the charge became a tax confined to the 2018/19 tax year on all loans arising from schemes used between 2010 and 2019.
‘Taxpayers end up deep into higher or additional rate bands’
According to WTT Group, the tax is calculated by aggregating all the loans or payments then-made and adding that sum to a taxpayer’s other 2018/19 income.
Typically, due to several years worth of payments effectively being taxed in a single year, the taxpayer ends up “deep” into the higher or additional rate bands, adds WTT.
But Labour’s new loan charge review states “individuals are responsible for their own tax affairs” and that “tax owed should be paid.”
‘Closing the tax gap’
In a letter to Ray McCann, the ex-president of the CIOT who will lead the loan charge review, the Treasury’s Mr Murray cautions him:
“Given our approach to closing the tax gap and the fiscal position, we will not be able to accept recommendations that don’t meet this criteria.”
Labour’s loan charge review is underway now (the review team can be emailed here), and will conclude with “recommendations” in the summer of 2025 (May is already rumoured).
‘Appropriate support for those subject to the loan charge’
In his letter, Murray shares with McCann the review’s three main objectives.
First, to bring the matter of the loan charge to a close; second, to deliver fairness for all taxpayers, and third, to ensure “appropriate support” for contractors “subject to the loan charge.”
Labour’s loan charge review will therefore not look at the actual legislation, despite its impact assessment neglecting to warn of people killing themselves over it.
‘Complex set-off mechanism’
The loan charge review will also not look at the charge itself, or explore its “complex set-off mechanism” (as WTT described it last week on social media).
Nor will the review consider HMRC’s enforcement of the charge, which MPs on the Loan Charge & Taxpayer Fairness APPG have raised numerous concerns about.
The review won’t look either at how it is that ten taxpayers affected by the charge have ended up taking their own lives.
A reported 13 additional individuals caught by the loan charge attempting to take their own lives also isn’t due to be considered.
‘Complete sham’
Steve Packham of the Loan Charge Action Group, which has supported people in distress at the exorbitant HMRC demands, is shocked.
“What the government has announced…is not a review at all, as it actually, astonishingly, excludes reviewing the loan charge.
“The review also fails…to include looking at HMRC, who conceived the Loan Charge [in the first place]”.
Packham added of Labour’s new review -- in a statement sent to ContractorUK: “It is a complete sham.
“And [it is] a betrayal of the promise made by Rachel Reeves last year.”
‘Farce’
Tory MP Greg Smith, the co-chair of the Loan Charge and Taxpayer Fairness APPG agrees.
He believes Labour’s loan charge review is “a farce,” adding:
“It is not actually a review of the loan charge, which is what the chancellor promised [in October].
“The supposed review starts by justifying the loan charge and it also makes clear that it will not change the position people are in, nor review the legislation and whether it was fair and justified.”
‘Limited terms of reference’
Reflecting from WTT Group’s office, managing director Mr Thomas called the review’s terms of reference “limited”.
He regrets that the review will only cover “post-DR years” (‘Disguised Remuneration’) and will omit any examination of “wider matters affecting taxpayers.”
In a January 2024 interview with LBC, some of those matters were flagged up by Labour’s Ms Reeves, who said the “real culprits” were those “who mis-sold products.”
But neither the new review’s objectives nor the policy paper mention scheme providers, indicating that -- like some chartered accountants who recommended the schemes -- the arrangements’ architects won’t face scrutiny.
‘Treasury ducking responsibility to pursue scheme promoters’
Crawford Temple, CEO of Professional Passport says: “It is very disappointing that the scope of the review is more focused on finding ways to get more individuals impacted by the loan charge to pay up.
“[And] I am incredulous that the Treasury and government are ducking their responsibility to solve the glaring problem which is to pursue the promoters of the schemes…who will get away scot-free.”
‘Immoral tax avoidance schemes’
Seb Maley, CEO of Qdos says: “For the government to assume that contractors should settle their tax liabilities completely misses the point.
“Thousands of contractors have been stung by immoral tax avoidance schemes, which all too often disappear without a trace. The government should be holding them responsible, not contractors.”
On Thursday, the closest that the government came to acknowledging the damaging role of promoters was probably when Mr Murray said:
“The government recognises that concerns continue to be raised about the loan charge.”
Concerns about the Sir Amyas Morse Review first surfaced as soon as the remit for the former auditor-general of the National Audit Office emerged.
Sir Amyas was tasked only to determine whether the loan charge was an appropriate mechanism to tackle disguised remuneration.
‘Improperly close working relationship ’
But concerns today about that prior loan charge review are predominately concerned with its lack of independence, because HMRC and HMT sought to influence the review, and the review’s team had an “improperly close working relationship” with government officials.
MPs on the Loan Charge and Taxpayer Fairness APPG further found (in June 2020) that the Treasury sought to influence the choice of experts appointed to advise Morse’s review.
Ominously, concerns about the independence of Labour’s new “independent” loan charge review are already mounting, and in much the same way.
‘Ray McCann has received a skewed brief’
Professional Passport’s Mr Temple said on Thursday: “This was a good opportunity to conduct a proper review into the scandal and it falls way short. [But] the brief to Ray McCann is skewed.”
Aside from lead reviewer Mr McCann being formerly of the Revenue (not just the CIOT), where he supported its anti-avoidance showpiece DOTAS, the review is to be staffed by a team of tax officials.
The officials will “not have previously worked on this policy area” and they will be based outside of HMRC’s and HMT’s offices, the government emphasised on Thursday.
‘McCann’s loan charge recommendations to be shared with HMT/HMRC pre-publication’
However, as lead reviewer, McCann is “expected to draw upon information and analysis provided by HMT and HMRC during the review.”
Even worse for its independence, the final report -- the report containing McCann’s conclusions -- is to be “shared with HMT and HMRC before publication”.
LCAG reflected: “As well as being staffed by officials from HMRC and Treasury… -- the two government bodies responsible for the whole loan charge fiasco, it is also being chaired by a former senior HMRC official who worked for HMRC/the Inland Revenue for 31 years.”
‘Corrections’
The Loan Charge Action Group further claimed that both HMT and HMRC will also be able to make “corrections” to McCann’s ‘final’ report.
Yet the so-far-released government documents on the new review including the document, “HMRC’s operational activity during the new independent review of the Loan Charge”, do not appear to talk of such corrections.
The documents do say McCann must examine the barriers preventing loan charge contractors (who have either not settled or not “paid their tax liabilities in full”) from “reaching resolution with HMRC.”
‘How contractors can be encouraged to settle with HMRC’
The documents also say the review will recommend ways in which loan charge contractors “can be encouraged to settle with HMRC.”
And the documents add that the review will explore what decisions would be required to ensure any new settlement proposals are properly targeted without “imposing significant additional administrative burdens upon HMRC.”
Despite the numerous ‘HMRC’ mentions, WTT’s tax director Graham Webber says: “The terms [of Labour’s loan charge review] do need to recognise the part played by HMRC -- [but don’t.]”
‘Alive to the issues’
Webber said he wanted to wish “good luck” to the lead reviewer, “Ray” and said WTT, as an advisory on the loan charge, wished to contribute.
Also of WTT, Mr Thomas was similarly supportive but went a step further, saying he had “confidence” that McCann is ‘alive to the issues.’
Potentially significantly, Labour’s loan charge review does give the respected tax veteran more than a little leeway.
The review says it will be for the reviewer to “decide what arrangements are needed to engage with stakeholders during the review.”
It also says “decisions about the operation of the review are a matter for the reviewer”.
‘If anyone can…’
In a ‘tweet’ reposted by leading lawyer Sarah Gabbai, who has co-written a ‘fair resolution’ policy paper on the loan charge, Judith Freeman, professor of tax law and policy at Oxford University wrote:
“Full of admiration for Ray McCann, who has agreed to take on [Labour’s] loan charge review. Not an easy job but if anyone can sort it out he can.”
Also on ‘X,’ formerly Twitter, a contractor known to be caught by the loan charge wrote: “LCAG once held a vigil for [the ten] loan charge suicides outside HMRC's Westminster headquarters. Management liked it, but not a lot. But even HMRC workers stopped to comfort bereaved family members. Not everyone's a robot.”