Loan charge review hits the election buffersby
News that the independent review of the government’s controversial loan charge will not be submitted to ministers until after the election has been labelled ‘deeply regrettable’ and ‘deeply worrying’ by MPs and tax experts.
The publication of the second review of the loan charge, led by former NAO head and PwC managing partner Amyas Morse, has been delayed until after the 12 December general election. This followed an update from financial secretary to the Treasury Jesse Norman on the last day of Parliament.
The move has been met with heavy criticism from MPs, accountancy and tax bodies, in part because those facing the charge are required to pay it by the self assessment deadline of January 31 2020.
The charge affects an estimated 50,000 people who used what HMRC terms as ‘disguised remuneration schemes’. In many cases, those affected face the prospect of paying tax on up to 20 years’ of income in the space of one financial year. The charge has also been linked to as many as six suicides.
'Wholly unreasonable situation'
In a letter to Chancellor Sajid Javid responding to the delay the Loan Charge All-Party Parliamentary Group (LCAPPG), a collection of MPs formed in opposition to the charge, stated they found it “extraordinary” that the government hadn’t realised that calling an election made the report’s original release date of mid-November untenable.
The group labelled the uncertainty created by the delay as “deeply worrying”, and stated that there is now a “wholly unreasonable situation” where thousands of people now cannot know whether or not they will face life-changing bills in January.
According to a survey conducted by the LCAPPG at the end of October, one in six people facing demands have still not received any settlement figures from HMRC.
The group called for an immediate suspension of the charge for a minimum of six months while the findings of the review were worked through.
“With the 31 January date so close and with people otherwise forced to make life-changing decisions because of it, it would be grossly irresponsible and palpably unjust not to announce a suspension of the Loan Charge reporting and payment date,” read the LCAPPG statement. “With this issue being, in some cases, literally a matter of life and death, we urge you to announce this immediately.”
The group also called for an investigation to assess “why HMRC failed to adequately resource the counter avoidance department to deal with the settlements process” and to investigate the behaviour of the tax department in relation to the charge.
Glyn Fullelove, president of the CIOT, labelled the increased uncertainty around the loan charge caused by the delay as “deeply regrettable”
“[It] risks confusion for both taxpayers and HMRC around what is required to be done before the end of January,” said Fullelove, and called for treasury ministers to examine and respond to the loan charge review within days of a new government being formed, and for a relaxation to the deadline.
“The closer to the self assessment deadline we get without this uncertainty being resolved, the stronger the case for extending deadlines for those affected, or saying no penalties will be charged, for a period at least, for late payment of loan charge-related tax, irrespective of the conclusions of the review,” said Fullelove. “Orderly payments of the correct tax ultimately due will be much preferable to rushed reporting and payments, with over and underpayments inevitably resulting.”
A brief history of the loan charge
The loan charge was designed to encourage taxpayers to pay income tax, national insurance and interest which HMRC believes to be due on loans they received in years going back to 1999. HMRC refers to those loans as “disguised remuneration” on the basis that they were never designed to be repaid, and hence the loaned amount should be taxed as if it was salary paid in the year it was provided.
Many taxpayers did not agree with HMRC’s view of the loans, and if they did agree they believed that the employer should be liable for the tax and NIC on the loan, rather than the individual. Arguments ground though the courts and in some cases HMRC did not act quickly enough to challenge the tax treatment before tax years were closed to enquiries.
The loan charge was proposed in the 2016 Budget to close down all the arguments about disguised remuneration, one flavour of which is contractors’ loans. All taxpayers who had not agreed their tax liabilities in respect of disguised remuneration loans by 5 April 2019 would have to pay the loan charge imposed at that date.
The loan charge taxes all outstanding loans as if the amounts were received as salary in 2018/19. The professional accounting bodies, including ICAEW, raised strong objections to the draft law, pointing out that taxpayers would become insolvent. However, the law was passed after the 2017 general election in the second Finance Act for that year.
Although an initial review into the charge was commissioned after an intervention by the LCAPPG, its findings were dismissed as a 'whitewash'. This prompted a second, independent review following a pledge from incoming Prime Minister Boris Johnson.
The entire affair was branded by RSM's tax expert George Bull as “a salutary lesson on how not to enact new tax legislation”.