HMRC reveals cost of loan charge

HMRC reveals cost of loan charge

Data obtained from HMRC has revealed that private individuals will face a bill of £800m from the government’s loan charge.

A spokesman for HMRC said: "The loan charge policy is expected to yield £3.2bn. We expect around three quarters of the money that we collect by tackling disguised remuneration will come directly from employers.

"Based on our latest settlement data, the median settlement amount for individual users is around £13,000."

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A quarter of £3.2bn is £800m. The taxman has previously stated there were about 50,000 individual taxpayers affected.

The loan charge relates to what HMRC calls disguised renumeration schemes, whereby employees were paid via loans instead of salary.

These loans were not taxed but HMRC is now asking for income tax to be applied to them retrospectively dating back to the 1990s.

The government's finance bill, which includes the measure, is presently working its way through parliament and HMRC has separately sent letters to taxpayers it believes have a liability. 

A parliamentary amendment to the finance bill, tabled by the Liberal Democrat MP Sir Ed Davey in January, asked the government to examine the impact of the loan charge.  

HMRC later agreed to allow those with an annual income of less than £30,000 seven years to repay the debt, while those with incomes of less than £50,000 will have up to five years to pay. 

Commenting on the latest figures from HMRC Sir Ed said he believed the bill for individuals could be higher still.

He said: "The numbers being produced about the average level of settlement doesn’t tally very well with what I and other MPs hear regularly from constituents."

He believes it is improper for the taxman to levy a tax retrospectively. HMRC's view is that as the loans remain unpaid, it is not applying the rules retrospectively.