We recently published an article overviewing HMRC’s new legislation, the 2019 Loan Charge. The government claims this to be the next phase in tackling tax avoidance. However many have raised concerns about the harshness of the new bill. There are calls for the taxman to be compassionate and flexible towards those they are taxing as contractors could be facing up to six-figure fees.
While some took a more balanced viewpoint…
The Institute of Chartered Accountants in England and Wales (ICAEW), stated that they, “support the underlying policy of countering tax avoidance, but are concerned about the potential hardship that this measure will cause in certain cases, particularly at the lower end, including some people who were misled into using these schemes.” Though they do believe that, “some people using DR [disguised remuneration] schemes knew exactly what they were doing and were deliberately avoiding tax. They deserve little or no sympathy. In fact, HMRC and the former Inland Revenue should have acted far sooner against these schemes.” Nonetheless, they prudently highlight that contractors and taxpayers were “misled about the arrangements and would not have appreciated what they were doing. In their case, while their position needs to be regularised […] they should not be so heavily penalised.”
Others spiritedly condemned the 2019 Loan Charge…
Lib Dem Work and Pensions Spokesperson, Stephen Lloyd MP has condemned the retrospective tax measures, labelling them an “unfair and draconian” attempt by the government for a “quick fix”. He believes the Loan Charge will be targeting hard-working contractors, instead of the firms and professionals who ran and recommended these disguised remuneration schemes to their trusting clients.
“As is often the way with legislation, IR35 contained unintended loopholes, and it gave birth to a whole new array of employment umbrella arrangements – usually paying people through loans – which promised employees safety from IR35. These all claimed to be approved by the UK Tax Authorities, the Queen’s Counsel and several top accountancy firms. Many well-intentioned freelancers received advice from tax professionals who were all too often prepared to send their clients down the new umbrella route.
The Government are now saying that these arrangements were invalid, and are ‘not what Parliament intended’. This is despite years and years […] of tax returns being filed, dues paid and HMRC not flagging that anything illegal was taking place. Instead, HMRC has suddenly opted for a ‘quick-fix’ by coming up with a law which will enable them to place a charge on all ‘loans’ going back as far as 1999.”
Consequently, a significant issue against the 2019 Loan Charge is that disguised remuneration schemes were used openly for a time and contractors were made to believe that the law permitted these schemes. No problems were raised by HMRC for almost 20 years and they did not start closing its loopholes until 2010. Regardless, the charge applies to loans going back as far as 1999. Lloyd went on to argue, “people who acted in good faith are being punished for the Government’s own imprecise legislation, which enabled agencies and tax advisers to take advantage of loopholes and flourish off the backs of honest contractors.”
HMRC’s plan of action
Overall, the resounding response to the 2019 Loan Charge is concern that it is too drastic for small-time contractors. Many are concerned that for those less experienced with tax affairs – who simply took the advice from professionals they trusted – this retrospective fine is unjust and could have a negatively life-changing impact. The government estimates that up to 50,000 people will be affected by the Loan Charge with many feared to be made bankrupt by these tax measures including; nurses, doctors, teachers, public sector contractors and freelancers.
However, HMRC has updated their settlement terms to help make it easier for contractors. They have stated that for those who worry about having difficulty repaying their loans, they can help you settle your tax affairs regarding disguised remunerations schemes, by spreading payments over a number of years.
On their guidance page for settling disguised remuneration tax affairs, HMRC has made a statement claiming: “even if you think you have no realistic way of paying what you owe, you should still call us as soon as possible. Telephone: 03000 534 226 We’ll talk with you about your options and work with you to resolve your tax matters in the best way.”
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