The Loan Charge review; recommendations and government response

Author: Barry Jefferd
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Originally announced in 2016, the so called ‘Loan Charge’ came into effect on 5 April 2019.

The measures sought to target users of disguised remuneration schemes. These schemes saw workers paid in loans rather than receiving income in the traditional sense of the word; for example, a direct salary or profits from a trade.

Recipients did not pay Income tax and National Insurance contributions, because the loans were not classified as income.

The potential savings were sometimes compromised though, as “loan arrangers” often charged large administrative fees.

However, as later stated by HM Revenue & Customs (HMRC): “The loans were never intended to be repaid, so they are no different to normal income and are taxable.”

Consequently, loans made since April 1999 and outstanding on 5 April 2019 became taxable as income on that date. Additionally, tax due would need to be paid in full. This left thousands of workers confused, fearful and facing huge tax liabilities.

Concerned about the fairness of the system, Sir Amyas Morse undertook an independent review of the Loan Charge policy and implementation in December 2019.

Morse’s recommendations and HMRC’s response to these have now been published.

Our article on the subject, with commentary from Tax Partner, Barry Jefferd, addresses HMRC’s proposed package of changes and how these might impact upon those taxpayers within the scope of the Loan Charge.

How can George Hay help?

The outcome of the loan charge review will affect many thousands of taxpayers.

Whether you have reached a settlement with HMRC, have a pending settlement or are about to disclose the Loan Charge in your Self-Assessment tax return, our tax advisers can help you to understand your liabilities and what the changes mean for you.

To discuss your circumstances in more detail with one of our team of professionals, contact us today.

HMRC’s published documents relating to the loan charge can be found here.

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