Prime Minister backs review of controversial tax charge

Prime Minister backs review of controversial tax charge

Prime minister Boris Johnson has backed a "thorough" review of the taxman's loan charge after mounting pressure from MPs and campaigners.  

Debuting at his first Prime Minister's Questions today (September 4) Mr Johnson promised a review of what he described to be a "very, very difficult" issue that has been met with growing criticism.

The loan charge relates to individuals who worked and received their remuneration via loans, which are not taxable, rather than a salary, which is.

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The loans were never intended to be repaid resulting in the tax office treating them as tax avoidance, although campaigners maintain the loans were legal.

In the 2016 Budget the government 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 had not been declared or repaid by the end of the 2018/19 tax year.

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 this figure paid by employers. 

In today's PMQs Ross Thomson, MP for Aberdeen South, asked the Prime Minister what plans he had to address the "unfair retrospective" loan charge.

Mr Thomson said: "It is tearing families apart, driving people to despair and reportedly some to suicide.

"Can my right honourable friend advise the house on what urgent action his government will be taking to address this."

In August Mr Thomson launched a petition to suspend the 2019 loan charge to allow for an independent review of the policy, confirming today that more than 8,000 people had signed the petition. 

Mr Johnson said: "This is an issue that my own constituents have raised with me and I know that my honourable friends have had this issue raised with them.

"I’m sure that members on all sides of the house have met people who have taken out loan charges in the expectation they could reduce their tax exposure.

"It is a very very difficult issue and what I have undertaken to do is to have a thorough review of the matter and of course I will make sure my friend has every opportunity to have further discussions with the Treasury about how to redress the situation."   

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.

Individuals who earn below £50,000 a year have been allowed five years to repay their debt, while those earning below £30,000 have seven years to pay, but they incur interest on those payment plans.

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.