A pressure group representing the self employed and freelancers plans to launch a judicial review against HMRC’s 2019 Loan Charge which will affect up to 50,000 contractors
Acting on the advice of leading tax barrister Robert Venables QC, the Loan Charge Action Group (LCAG), are mounting a legal challenge on the basis that the schemes for self-employed people which come under the scope of HMRC’s Loan Charge were mis-sold to them by employers and accountants.
The LCAG argue that the tax being pursued by HMRC should be paid by employers rather than those working for them, and that the charge represents an unfair retrospective tax.
The 2019 Loan Charge was introduced by Finance (No. 2) Act 2017. HMRC describes it as a tax charge on ‘employment related taxable loans made by third parties on or after 6 April 1999 brought within Part 7A ITEPA 2003 if they remain outstanding on 5 April 2019’. Effectively the government is clamping down on the use of tax-free loans as salary substitutes under schemes which are now deemed to be unacceptable tax avoidance schemes.
If the Judicial Review is successful, LCAG says the underlying tax situation will not be resolved but that the retrospective element of the charge will be reduced as HMRC will not be able to pursue closed years.
In advice to members, it says: ‘Closed years should remain out of reach by HMRC as your normal taxpayer protections will have been restored. Open years will still be able to be pursued by HMRC. APN’s will remain. But it does mean that HMRC will need to continue their enquiries and can be pushed to conclude these, which then means there is an option for the conclusion to those enquiries to be challenged through the proper processes. Currently HMRC are being very slow to conclude enquiries, possibly because the Loan Charge is on the horizon.’
The Judicial Review will be heard by the High Court in April/May 2019 and judgment is expected in July after which either party may appeal to the Supreme Court.
Those workers who have already reached or intend to reach a settlement with HMRC prior to the declaration deadline 30 September 2018 will not be affected by the outcome.
An HMRC spokesperson said: 'In the interests of the vast majority of taxpayers who play by the rules, we challenge tax avoidance whenever it occurs and will vigorously defend this action.'
Report by Rob Munro