The government is to reform the controversial loan charge after an independent review found the tax bill had gone “too far”.
The review, conducted by Sir Amyas Morse and published today (December 20), recommended a series of reforms to ensure “fairer treatment” of those affected and “better protections” for the most vulnerable.
While the review acknowledged there was a clear public interest in preventing the use of loan schemes to avoid tax, it concluded the loan charge “went too far” by overriding taxpayers’ statutory protections by "applying an unprecedented 20-year look back period and failing to adequately consider the serious distress" it would cause those affected.
The review also identified failings in the approach HM Revenue & Customs took to enforcing the policy, saying in some cases this had fallen short of the standards the public had a right to expect, particularly in cases where life changing sums of money were at stake.
Today the government agreed to accept all but one of the recommendations put forward by Sir Amyas in his report.
The government will make changes so the loan charge will only apply to loans taken out on or after December 9, 2010 as the review found legislation announced at that time “removed any doubt” that the tax was due.
On top of this, the loan charge will no longer apply to users of loan schemes between December 9, 2010 and April 5, 2016 who fully disclosed their schemes on their tax return, which HMRC then failed to take action on.
Consumers still levied with the loan charge will be allowed to defer their filings and loan charge liability until September 2020 and can split the loan balance over three tax years to make the bills more affordable as part of the changes.
According to the Treasury the measures are estimated to reduce bills for more than 30,000 people — more than 60 per cent of the total number of those subject to the loan charge — and about 11,000 will be will be taken out of it altogether.
Financial secretary to the Treasury Jesse Norman welcomed the report and said the changes being made went to the “heart” of Sir Amyas' concerns about the charge.
The loan charge relates to people who worked and received their remuneration through loans, which are not taxable, rather than a salary, which is. The loans were never intended to be repaid resulting in the tax office treating them as tax avoidance, although the loans were legal at the time.
The loan remuneration structure was considered above board for the years it was used until HMRC clamped down following the bankruptcy of Rangers FC, which had been operating a similar scheme.
This led to widespread action and the process was outlawed, but HMRC chiefs also applied the law to previous cases and were pursuing people who used a loan payment scheme as far back as 1999.
HMRC has since reported itself to the police watchdog at least four times over the deaths of individuals notified of a loan charge bill.
The government did not accept the recommendation in the review to introduce a write-off of tax due on the loan charge after 10 years for individuals whose time to pay arrangement is longer than 10 years, however.
According to the Treasury this would give loan charge users more favourable terms than taxpayers with other debts, including tax credit claimants.
Sir Amyas said: “The design and delivery of the loan charge didn’t get the balance right between tackling tax avoidance and protecting the rights of taxpayers and, in some cases, has caused serious distress to the individuals affected.
“I’m pleased to see the government commit to act on the recommendations of my Review, bringing the Loan Charge back into line with the wider tax system, better protecting those who are least able to repay and providing certainty for all those affected.”
imogen.tew@ft.com
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