The former head of the National Audit Office (NAO), Sir Amyas Morse, will head up the independent review into the controversial loan charge, which has seen HMRC pitted against taxpayers who used disguised remuneration schemes over the last decade, and is set to report by mid November
Following sustained criticism of the loan charge rules to claw back tax and national insurance contributions (NICs) from contractors operating through umbrella companies, for example and paid in loans – known as disguised remuneration – over a decade or more, the government was forced to launch an independent review to consider whether or not the Loan Charge was the right way to deal with individuals’ use of the disputed tax avoidance schemes.
Sir Amyas Morse, the former Comptroller and Auditor General, and chief executive of the National Audit Office (NAO), a position he held from 2009 to 2019, will lead the independent review.
The review will conclude by mid-November to give taxpayers certainty ahead of the 31 January self assessment deadline, the financial secretary to the Treasury, Jesse Norman, said.
While the review is under way the loan charge remains in force.
HMRC has issued a notice confirming that ‘if you are not settling your disguised remuneration scheme use, you will still need to complete an additional information return by 30 September 2019. If you fail to do so HMRC reserves the right to charge penalties.
The disguised remuneration loan charge was introduced in 2016 to tackle contrived schemes where a person’s income was paid as a loan which did not have to be repaid, with targeted anti-avoidance legislation introduced as early as 2011 by then Chancellor George Osborne.
The review will focus on the impact on those individuals who were using the schemes directly, and whether the loan charge policy is an appropriate way of dealing with disguised remuneration loan schemes used by individuals who entered directly into these schemes to avoid paying tax, in the view of the government and HMRC. This reflects main concerns raised by MPs and campaigners about the loan charge.
The government said that despite attempts to close down the schemes, they ‘continued to proliferate, and with many users not disclosing their use of them as they were required to, the government announced the loan charge in 2016. That gave users three years to either repay the loan, settle the tax due with HMRC, or face an income tax charge on the stock of outstanding loans’.
Around 40,000 people are affected by the loan charge, although some taxpayers have settled with HMRC during the three-year settlement agreement period.
George Bull, senior tax partner at RSM said: ‘It seems likely that the Treasury were caught on the hop by the Prime Minister's announcement last week of a review into the loan charge, and they are now racing to play catch-up.
'While many campaigners have been pushing for this review, they will be disappointed that the loan charge hasn’t been put on hold pending the outcome. The terms of reference make it clear that the loan charge remains in force.
'It's very important for those subject to the loan charge to follow the published advice. In essence, those who have already settled should do nothing, those who have settled and are paying by instalments should continue to do so.
'Those who have provided all the required information by 5 April 2019 and are waiting to finalise a settlement can continue to do so if they wish. However, HMRC has indicated that they may wish to wait for the Government's response to the review before settling.’
The government is adamant that ‘disguised remuneration schemes do not work and that their use is unfair to the 99.8% of taxpayers who do not use them’.
Financial Secretary to the Treasury Jesse Norman said: ‘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.
‘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.'
HMRC Disguised Remuneration: Loan Charrge Review notice, issued 11 Sep 2019