Home Financials Independence of Loan Charge review in doubt as Amyas Morse confirmed head...

Independence of Loan Charge review in doubt as Amyas Morse confirmed head of inquiry


The “thoroughgoing” review of the 2019 Loan Charge sanctioned by Boris Johnson last week will be led by the former chief executive of the National Audit Office, Sir Amyas Morse, it was confirmed on Wednesday.

The contractor tax review, commissioned by Chancellor of the Exchequer Sajid Javid and announced by financial secretary to the Treasury, Dr Jesse Norman, marks a victory for opponents of the Loan Charge (independent contractor & self-employed people) who have lobbied the government for such an income tax review since at least March 2018.

However, concerns were instantly raised that the secretariat of the taxes review will be staffed by HM Treasury and HM Revenue and Customs officials, with a cross-party committee of Parliamentarians opposed to the tax suggesting that their involvement would create a “conflict of interest”.

Iain Duncan Smith, the former Conservative leader who has been a vocal critic of the Loan Charge, said of the review:

“it is clear that this is not going to far enough. There must be a call for evidence so that those affected can express their views.”

Ruth Cadbury, vice-chair of the Loan Charge All-Party Parliamentary Group (APPG), tweeted: I’m disappointed that, despite [the Loan Charge APPG] asking for a fully independent review, it will be staffed by Treasury & HMRC staff.  To ensure it’s truly independent, I hope Sir Amyas will appoint from outside both”. The Loan Charge APPG has written to Sajid Javid to confirm whether it will be fully independent of the Treasury and HMRC.

Campaigners against the Loan Charge are keen to ensure the independence of the income tax review, after a previous review of the Loan Charge that was mandated on the government in January was dialled-down to a simple report by the Treasury and HMRC. HMRC have said that Sir Amyas will have the final say on the content of the report summarising the findings of the forthcoming tax return review.

The Loan Charge affects tens of thousands of disguised remuneration tax avoidance scheme users, a significant proportion of whom are self-employed people, such as independent contractors, who received loans as part of umbrella company products designed to avoid IR35. Average liabilities in the form of estimated tax payments are disputed but many run into the tens of thousands of pounds. MP Anne Main disclosed in the House of Commons that one of her constituents is being pursued for £900,000. Several suicides have been linked to the policy for those on self-employment income.

The remit of Sir Amyas’ review was confirmed by HMRC yesterday as:

  • whether the Loan Charge, as it applies to individuals who have directly entered into disguised remuneration schemes, is an appropriate response to the tax avoidance behaviour in question; and
  • 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 income of individuals, including affordability for those pursued to pay taxes.

The tax law review is expected to conclude by mid-November to give taxpayers certainty before the January self-assessment deadline, but HMRC yesterday continued to take a hard line against loan scheme users, reserving the right to apply penalties to taxpayers who did not opt to take part in their settlement opportunity for payments, if they do not provide information about their loans by the deadline of 30th September.

HMRC also confirmed that litigation against loan schemes will continue pending the outcome of the review. Advanced Payment Notices (APNs) will also continue to be expected to be paid and statutory late payment interest will continue to be accrued on unpaid Loan Charge payments.

Additionally, the tax authority confirmed that taxpayers who have already agreed a settlement with HMRC in instalments will be expected to continue paying the instalments until the review comes to an end.

Taxpayers who have not finalised their settlement with HMRC can continue to agree to a settlement “if they wish to do so”, although HMRC “recognise that [taxpayers] may want to wait for the government’s response to the review before finalising [their] settlement”.

Commenting on the announcement, Mr Norman said: “Everyone should pay their fair share of tax. These disguised remuneration schemes are highly contrived attempts to avoid tax, but it is right to consider if the Loan Charge is the appropriate way of tackling them.

“The Government fully appreciates the concerns expressed by individuals, campaigners, and MPs who have raised concerns about the Loan Charge, and the Chancellor has today appointed Sir Amyas Morse, former Comptroller and Auditor General and Chief Executive of the National Audit Office (NAO), to lead an independent review of the policy.

“Sir Amyas is known and respected across Parliament for his expertise and independence of mind. The Government looks forward to his report as it continues to tackle these and other tax avoidance schemes.”

The Loan Charge is intended to tackle tax avoidance through disguised remuneration schemes that paid their employee in the form of tax-free loans that were remitted on terms that meant they were unlikely to ever be paid back. The charge has come under significant criticism for its quasi-retrospective scope, which means that income tax and National Insurance can be applied to loan transfers that were made up to twenty years ago and to be settled in the current tax year.

Opponents of the Loan Charge claim that taxing payments that were ostensibly legal at the time that they were made undermines legal certainty to pay estimated taxes. Whilst at the same time, it erodes the statutory taxpayers’ protections that give HMRC set time limits under which to query individuals’ income tax return files.

The disguised remuneration loan schemes that the Loan Charge targets were subject to failed HMRC litigation in 2005 and 2008. Then it was uncovered that Rangers FC had been using a similar scheme from 2001 onwards to pay some of their staff and players; a huge tax case followed that ended up in the Supreme Court: HMRC won, although the court found that the tax liability should sit with the employer, who had failed to tax their employee properly under the Pay-As-You-Earn (PAYE) regime.

Rather than chasing the promoters of loan schemes under the precedent set in the Rangers case, the government subsequently created a new tax rule, the Loan Charge, that could tax the historic loan balances of individual scheme users. The loan balances were still outstanding because the way the schemes worked meant that the loans were never paid back.

The Loan Charge was first subject to Parliamentary scrutiny last December in the House of Lords, whose Economic Affairs Committee requested the then-HMRC minister Melvyn Stride to appear before them to explain the tax authority’s belligerence – Mr Stride refused to appear before the committee on four separate occasions, prompting the committee chair Lord Forsyth to say at the time “we have serious concerns about the minister’s failure to give evidence to our inquiry.”

Following a Westminster demonstration in January by the Loan Charge Action Group (LCAG), a cross-party group of MPs and Peers was formed to scrutinise the tax. Their final report, published in April, recommended a judge-led, independent review of the policy. The government ignored the report. Parliamentarians, tax barristers and campaigners continued to lobby government since then, with over 200 MPs signing an open letter to Mr Norman calling for a review and suspension of the levy.

12th September 2019.