Government starts review of controversial tax charge

Government starts review of controversial tax charge

The government has commissioned a review of the loan charge to examine if the legislation is fair.

The loan charge relates to employees, and their employers, who used disguised remuneration schemes to receive income payments through loans rather than salary and so avoided paying income tax.

With the loan charge, which was approved by Parliament in the 2017 Finance Bill, HM Revenue & Customs was authorised to pursue individuals and companies that engaged the practice going back to 1999.

Those affected by the policy were given an April 2019 deadline to settle or declare their tax bills and failing that would be levied the additional loan charge.

Today (September 11) chancellor Sajid Javid commissioned an independent review of the charge saying the government recognised that concerns have been raised about the policy and its effect on people.

Included in the terms of reference is a requirement to examine “whether changes announced by the government in advance of, and since, the loan charge came into effect address any legitimate concerns that have been raised about the impact on individuals, including affordability for those affected".

There is evidence of the policy's significant impact on some of those affected. 

In April HMRC reported itself to the police over the death of an individual who had been notified of a loan charge bill, in the first case in which the taxman, according to FTAdviser's sister paper the Financial Times, felt it had been given sufficient evidence to link a death to the policy.

The government's review will be led by Sir Amyas Morse, former chief executive and comptroller and auditor general of the National Audit Office.

He will report to the government by mid-November with the aim of giving taxpayers certainty as to what will happen ahead of the self-assessment tax deadline in January 2020. 

The government stipulated that while the review is ongoing the loan charge remains in force, in line with current legislation.

"The government will consider and respond to the outcome of the review once it has concluded," it stated.

The move comes after prime minister Boris Johnson signalled his support for a review last week, having previously indicated during his time as a backbench MP that he supported such a review. 

George Bull, senior tax partner at RSM, said: "It seems likely that the Treasury were caught on the hop by the Prime Minister's announcement last week of a review into the loan charge, and they are now racing to play catch-up.

"The government clearly recognises the urgency of completing this review quickly.

"While many campaigners have been pushing for this review, they will be disappointed that the loan charge hasn’t been put on hold pending the outcome. The terms of reference make it clear that the loan charge remains in force."

The introduction of the loan charge had caused a wave of protest, including from MPs.