Government under pressure to launch loan charge review

MPs and contractors are intensifying pressure on the Chancellor to review the loan charge which has seen contractors paying retrospective tax bills on remuneration schemes which were outside PAYE, some dating back 20 years

In the latest development, more cross-party MPs have added their voice to the criticism of the measure, writing to the new Chancellor Sajid Javid, calling for a review and a delay to the loan charge payment deadline of 31 October.

These include Ruth Cadbury, MP for Brentford and Isleworth, who is also vice chair of the Loan Charge All-Party Parliamentary Group (APPG), Jim Cunningham MP for Coventry South and Caroline Spelman MP for Meriden.

Ross Thompson, MP for Aberdeen South, has launched a petition calling on the government to suspend the 2019 loan charge and to arrange a ‘proper review of the policy which is independent of HMRC and the government’.

The petition also calls on the government ‘to put all settlement activity on hold and that all settlement agreements, including agreed payment plans, be suspended until the independent review is completed and Parliament has considered its conclusions’.

With a new government team in place, there has been an intensification in lobbying activity. Eleven organisations representing thousands of contractors and freelancers have also written an open letter to the Prime Minister Boris Johnson and Chancellor asking for a review of the controversial loan charge clawback and to drop plans to introduce off-payroll tax for the private sector, requesting that the government works collaboratively with the sector.

The extension of off-payroll working rules to the private sector was announced by former Chancellor Philip Hammond at Budget 2018. It is due to come into force from April 2020 and will see private sector employers liable for NICs and income tax, effectively bringing thousands of contractors into the PAYE system as opposed to retaining self employed status. The legislation is in draft in Finance Bill 2019-20, which is currently out for consultation.

A Treasury spokesperson told Accountancy Daily: ‘The off-payroll reforms will mean that two individuals working in the same way pay broadly the same income tax and National Insurance contributions, even if one of them works through a company.

‘The loan charge is designed to tackle tax avoidance and ensure everyone pays their fair share. It builds on more than two decades of HMRC action to challenge these schemes.”

The PM and his team of ministers will be setting out more details on their planned policy agendas over the next few weeks and months. The Treasury stressed that decisions on tax are for the Chancellor to announce at key fiscal events like the Budget.

The loan charge group is calling for a suspension of the loan charge before 30 September 2019 and for an independent review of the clawback on NICs and income tax, often dating back 10 years, for remuneration packages paid by umbrella companies which HMRC did not outlaw at the time. HMRC did run a settlement for outstanding loan charges but many taxpayers did not opt in due to disputes over the tax bills and the retrospective nature of the action.

The second demand is that the government drops the roll-out of off-payroll tax from Finance Bill 2019-20.

Johnson stated at the Conservative party leadership hustings in Carlisle in June that the loan charge ‘seemed superficially unjust’ and that ‘there should be an independent review’. He was also one of more than 50 MPs who signed a letter to the former Chancellor calling for the loan charge to be reviewed.

Dave Chaplin, director of Stop the Off-Payroll Tax campaign and CEO of ContractorCalculator said: ‘The change of Prime Minister and Chancellor must now lead to a change of course over contracting if the Conservative government wants to win back the trust of the sector.

‘Up until now, the Treasury has listened to no-one other than HMRC, who have continually made a misleading case for these ill-considered policies which may suit their aim of “maximising revenue” but have already done and will do huge damage to contracting and British business.’

The letter was signed by Stop the Off-Payroll Tax campaign, Loan Charge Action Group, Freelancer & Contractor Services Association (FCSA), ContractorCalculator, Contractoruk.com, Freelanceuk.com, IT Contracting, Prism, Forum of Private Business, WTT Consulting and Professional Passport.

Accountancy Daily