HMRC softens to pressure over tax change

HMRC softens to pressure over tax change

HMRC will now give some contractors caught by tax changes associated with loan charges more time to repay their debt.

HMRC decided that taxpayers with an income of less than £30,000 will have a "minimum" of seven years to repay any tax owed. 

Previously, the taxman's policy was that those with an income of less than £50,000 would have a minimum of five years to repay the money. This provision will continue.

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The tax 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, going back to 1999.

Pressure was put on HMRC by Liberal Democrat MP Sir Ed Davey, who in an amendment to the Finance Act, asked the government and HMRC to investigate the impact of the changes on lower earning contractors.

The government accepted the amendment without a vote. But HMRC responded with a statement saying the amendment changed nothing.  

Then on Wednesday (January 30) Mary Aiston, HMRC’s head of counter-avoidance, told the Treasury select committee she accepted more could have been done to highlight to taxpayers that these schemes were regarded by the tax authority as contravening the rules, before revealing HMRC had given lower earners more time to repay the tax.

Sir Ed, who objects to the retrospective element of the tax charge, told FTAdviser: "HMRC say they have felt this was wrong since the late 90s. But they have lost several court cases since then around this matter.

"I think this is grotesque. If you are a taxpayer, and you know that HMRC have lost in court several times on issues relating to these schemes, I think it is reasonable for a person to think it is legitimate.

"Now I accept that from now on it's not legitimate and the law changes, but that should take affect when the Finance Bill becomes law and not be applied retrospectively." 

FTAdviser has previously reported that another MP, Stephen Lloyd, had tabled an early day motion on this issue.

Reacting to the news of the extended time to pay, Mr Lloyd said: "I am glad HMRC have finally decided to be more reasonable on the length of time given for people to repay their loan facilities."

But Andrew Hubbard, tax specialist at RSM, explained HMRC took the view that because the loans paid to taxpayers remained outstanding in this financial year, the rules were not retrospective.