An announcement by HM Treasury that some individuals will now not face an additional tax charge has been branded a "tiny concession".
The Treasury minister Jesse Norman MP announced to the Economic Affairs committee of the House of Lords on Tuesday (July 16) that a group of people previously viewed as liable for the loan charge would now not be pursued.
The loan charge relates to individuals who worked and received their remuneration via loans, which are not taxable, rather than salary, which is. The loans were never intended to be repaid leading the tax office to treat this as tax avoidance.
The government in the 2016 Budget confirmed it intended to ban the practice and have the tax repaid as well as levy a charge on the taxpayer and their employer if the loans or relevant tax haven't been declared or repaid by the end of the last tax year (April 2019).
Former Treasury minister Mel Stride confirmed in May 2019 that £1bn had been collected from loan charge taxpayers up to that point, with 85 per cent of the money coming from employers.
But Mr Stride’s successor Jesse Norman, who took up office in May, said on Tuesday that individuals who in previous years had declared their loans on their tax return and had this signed off by HMRC, are now not liable to pay the loan charge. Although they will have to pay the tax owed for the year in question.
FTAdviser understands that the Treasury does not regard this as a change of policy but instead as a clarification of the existing policy.
A Treasury representative declined to comment for this article, while an HMRC representative told FTAdviser it was a matter for the Treasury.
Sir Ed Davey MP, who chairs the all party parliamentary group on the loan charge and is presently contesting the Liberal Democrat party leadership election, said the announcement from Mr Norman was a "tiny concession" that did not address the underlying issue that the charge was being applied retrospectively.
He said it did not take into account that many taxpayers declared the loan charge in the relevant tax year, but where HMRC chose not to carry out an enquiry and closed the individual’s tax account for the relevant year those taxpayers will still have to pay the loan charge.
Mr Davey said the policy of applying the charge to years prior to the Finance Bill of 2017 was "against the rule of law" as it means applying a new law retrospectively.
HMRC has previously expressed the view that the law is not being applied retrospectively because the loans remain outstanding in this tax year.
HMRC said those affected by the loan charge typically earned twice the national average salary for the UK.