HMRC insists tax crackdown 'unchanged' despite MPs' action

HMRC insists tax crackdown 'unchanged' despite MPs' action

The taxman insists nothing has changed about a crackdown on contractor tax schemes, despite MPs forcing the government to reconsider the policy.

The government has accepted an amendment by a cross-party group of MPs who had concerns about the retrospective nature of the tax change and the fact the scheme was used by many ordinary contractors.

Liberal Democrat MP Sir Ed Davey, who tabled the amendment, said the idea that a tax change could apply retrospectively was "against the rule of law".

He said: "This wasn’t some esoteric tax scheme concocted by the super rich, it was quite commonly used, and wasn’t hidden.

"People in my constituency, IT contractors and others by no means on massive incomes used these schemes as they were legal, and could now be faced with bills of hundreds of thousands of pounds."

He was not opposed to the changes, just to the fact the changes apply retrospectively.

The change applies to disguised remuneration schemes where a contractor was loaned money by a trust they set up. Because this money was classed as a loan, rather than income, tax was not paid. The loans were, in most cases, never intended to be repaid.

But in the Finance Bill the government stated that unless all the loans were repaid by April 2019, the tax that would have been due from all previous years would be levied.

If the full amount of the loan is repaid to the trust by April 5, then no tax is due.

Sir Ed's amendment was signed by more than 30 MPs from different parties and, rather than force a vote, the government decided to accept the amendment and have a review.

The amendment forces the government to reconsider the retrospective nature of the law, meaning a review will take place and the government must report to Parliament by the end of March.

But a HM Revenue & Customs spokesman said: "The loan charge legislation is unchanged and the charge will come into effect on April 5. The amendment does not change the legislation but will ensure that a review of the impact of the loan charge is published before that date.

"We want to do all we can to make it simple for people to get out of these schemes and we’re here to help. Anybody who is worried about being able to pay what they owe to get in touch with HMRC as soon as possible on 03000 534 226."

Sir Ed said the amendment was "the will of parliament, though of course I understand why HMRC will push back on it".

He said: "Every single MP who spoke in the debate, Tory and Labour and everyone else, backed the amendment. The minister then accepted the amendment. Minister’s don’t do that unless they think they are going to lose the vote."

Fiona Fernie, a tax specialist at Blick Rothenberg, said the loan charge was one of several areas where the House of Lords economic affairs committee expressed concern about the extension of the powers of HMRC in recent years.