Tax  

Warning sounded as loan charge victims asked to waive rights

Warning sounded as loan charge victims asked to waive rights

Taxpayers who are facing HM Revenue and Custom's controversial loan charge are being asked to waive future legal rights under the taxman's settlement agreements. 

The loan charge has been levied since the start of this tax year on those who benefitted from disguised remuneration schemes, used to pay employees via third party companies which "loaned" the money to the worker. 

The loans were never intended to be repaid so HMRC treated them as tax avoidance, but campaigners have argued many employees agreed to the schemes only after seeking expert advice. 

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 unpopular policy has left many with significant tax bills and has led to widespread criticism from MPs, professional bodies and protestors. 

HMRC is in the process of agreeing voluntary settlements with some loan charge victims to pay back the tax owed from the schemes, but certain clauses in these agreements have raised cause for concern amongst campaigners. 

In particular, taxpayers signing the contracts agreed not to take “any action with a view to obtaining repayments from HMRC of any part of the settlement amount”, including but “not limited to” making a claim under common law.

The contract also requires taxpayers to refrain from making a claim against HMRC under the clause in the Taxes Management Act 1970 which relates to recovery of overpaid tax. 

Concerns have been raised this is effectively asking taxpayers to "sign away" legal rights in the event the law should change or HMRC were to lose a case in the future. 

Concerns have also been raised that the wording of HMRC's settlement contract jeopardises a taxpayer's right to challenge the retrospective tax bill should a review, or a future government, find the taxman's actions were unlawful. 

When approached by FTAdviser HMRC maintained the clause did not "sign away" all the taxpayer’s legal rights and they would still have rights under the terms of the agreement. 

In October prime minister Boris Johnson confirmed his backing of a ‘thorough’ review of the loan charge following mounting pressure from MPs and campaigners and after chancellor Sajid Javid commissioned a review in September.

In its election manifesto published last month the Liberal Democrat party went a step further and pledged to end retrospective tax changes such as the loan charge so that individuals and firms are "treated fairly".

FTAdviser understands HMRC has told taxpayers currently in the settlement process they are entitled to pause it whilst the government’s review into the loan charge is ongoing. 

Steve Packham, spokesperson for the Loan Charge Action Group, said: "One of the most shocking things about the draconian loan charge legislation is that not only does it take away a citizen’s right to challenge the state over a disputed retrospective tax bill, but the so-called voluntary settlement process actually involves signing away any future right to legal redress, should the law change.