The Government has welcomed an independent review that recommends changes to the Loan Charge, while also confirming that it was a ‘necessary’ response to the tax avoidance schemes it was designed to tackle.
The Review, led by Sir Amyas Morse, was commissioned to look at the impact of the charge, which was introduced to tackle those who used Disguised Remuneration schemes.
Sir Amyas, the former head of the National Audit Office (NAO), confirmed the schemes were a form of tax avoidance but made a series of recommendations about the design of the charge and its impact on those in its scope.
The Government recognises the concerns raised in the Review about the impact on individuals and fairness of some aspects of the Loan Charge. To address them, all but one of the recommendations have been accepted.
Following the Review the Government will:
- make changes so that the Loan Charge will now only apply to loans taken out on or after 9 December 2010. The Review found that legislation announced in 2010 removed any doubt that tax was due
- not apply the Loan Charge to users of loan schemes between 9 December 2010 and 5 April 2016 who fully disclosed their schemes on their tax return and where HMRC failed to take action
- allow users to defer filing their returns and paying their Loan Charge liability until September 2020
- allow taxpayers to split the loan balance over three tax years to make bills more affordable
- invest in a new HMRC team to collect tax from those who used the avoidance schemes pre-2010
The package of measures announced are estimated to reduce bills for more than 30,000 people subject to the Loan Charge, more than 60 per cent of the total number of users. That includes an estimated 11,000 who will be taken out of it altogether.
The Government has also announced further steps to crack down on promoters of Disguised Remuneration schemes and will announce further action at Budget to tackle their ongoing use.
Financial Secretary to the Treasury Jesse Norman said “We welcome this careful and considered report, and I thank Sir Amyas and his team for their work.”
“There have been important public concerns about this policy, and that is why we commissioned this report and have responded so quickly to it. The changes we are making go to the heart of Sir Amyas’s concerns about the fairness and application of the Loan Charge, which he accepts in principle.”
“We also have plans under way to crack down further on the promoters of these avoidance schemes. Among other recommendations in the Review, HMRC will – once legislation has been passed – repay parts of some settlements reached with taxpayers where they had voluntarily paid amounts due for earlier years.”
“New guidance will be published to help users of the schemes understand what they have to do – and extra time will be provided so that users of schemes can defer sending their return, and paying the tax for 2018-19, until the end of September 2020. The Government remains committed to tackling tax avoidance – which deprives the Exchequer of funds for vital public services and is unfair for the vast majority of taxpayers who pay the tax they owe at the right time.”
Sir Amyas Morse’s independent review into the Loan Charge includes a series of middle-ground reforms which aim to balance taxpayers’ responsibility alongside pre-existing HMRC requirements.
Explaining the review, Morse said: “The foundation of our tax system is fairness and where this is undermined through avoidance schemes it is right that these are tackled. However, in doing so, the government and HMRC must act proportionately and responsibly. As my Review makes clear, the design and delivery of the Loan Charge didn’t get the balance right between tackling tax avoidance and protecting the rights of taxpayers and, in some cases, has caused serious distress to the individuals affected.”
Jon Claypole, Tax Partner at accountancy and business advisory firm BDO said “Following much anticipation, Sir Amyas Morse has published his review of The Loan Charge and the result is certainly significant. Whilst it is definitely not a whitewash, the government has accepted some key recommendations, which will be a big boost to those affected.”
“Firstly, the scope of The Loan Charge was set to go back to April 1999, but this report recommends only going back as far as December 2010, a view the government has accepted. Furthermore, in circumstances whereby an individual has fully disclosed their use of The Loan Charge to HMRC, and HMRC failed to take action, the Loan Charge will not apply. HMRC will also repay those individuals who previously made voluntary payments to prevent the loan charge falling due.
“Despite this welcome and timely boost ahead of seasonal festivities, those impacted should seek independent advice, in particular regarding the very immediate conundrum on what this means for filing 2018-19 tax returns. The government is allowing tax returns in certain circumstances to be filed by 30 September 2020 without incurring interest and late filing penalties.”
“It is key to bear in mind that the legislation is yet to be attested, but this review appears designed to make The Loan Charge more equitable, with many campaigners perhaps playing a key role in highlighting the scale of the ramifications to those set to be impacted.”