HMRC collects £1bn from loan charge

HMRC collects £1bn from loan charge

The Treasury has so far collected £1bn from the loan charge, with the majority collected from employers.

Responding to questions in parliament yesterday (22 May) Mel Stride, financial secretary to the Treasury, confirmed the £1bn figure and said "85 per cent of the cash raised [came] from the employers".

He added the average salary of the employees impacted was double the national average income.

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The loan charge has been levied since the start of this tax year on those who benefitted from disguised remuneration schemes.

These schemes were used to pay employees via third party companies which "loaned" the money to the worker so they could avoid paying income tax on their earnings. The loans were never intended to be repaid.

The introduction of the loan charge, which is an extra fee on top of the tax owed, was announced in the 2016 Budget and confirmed in the 2017 Finance Bill.

The charge applies to those who didn’t either repay the loan or the tax owed by the end of the most recent tax year this April.

But the £1bn quoted relates to any money recouped by the taxman, including tax and the loan charge.

HMRC stated it had identified a total of 50,000 individuals involved in the practice and that it expects to raise £3.2bn from the charge, with two thirds of the cash coming from the employers.  

Several MPs also quizzed the minister on the issue of applying the charge retrospectively.

The taxman’s view is that the loan charge is not retrospective, despite it covering income earned as far back as 1999 and the law only coming into force in 2017, because the loans issued to provide that income remain outstanding in this tax year.

But Ed Davey, Liberal Democrat MP for Kingston and Surbiton who chairs the all party parliamentary group on the loan charge, said: "HMRC are wrong on the issue of retrospection, they are wrong in law.

"I agree that these schemes should be shut down, but not applied retrospectively.

"There are people involved who filed tax returns for previous years and had those returns agreed by HMRC, and are now getting bills for those years. HMRC were wrong not to ban this practice earlier."

Mr Stride said he doesn’t agree that there are people who were "forced" to take part in these schemes after being asked by an MP whether that was the case.

But Sir Ed replied: "This view doesn’t stand up, we took evidence in parliament from people who were social workers, who applied for a job and were told the only way to get the job is to work via a certain agency, they did it because it was the only way to get a job, and they didn’t know they were signing up to tax avoidance."

Opposition MPs said the next stage of their campaign against the loan charge will be to try to table an amendment to future government tax legislation.