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Government Launches Controversial Review of Loan Charge Amidst Criticism

The government has initiated an independent review of the loan charge policy, a move that has drawn sharp criticism from advocacy groups who label the effort as a “sham.” The loan charge, originally established to eliminate a tax loophole, has placed an undue financial burden on numerous freelance workers, leaving them to grapple with substantial tax liabilities.

In a statement issued on Thursday, Treasury Minister James Murray outlined the review’s objective: to identify obstacles that hinder individuals from settling their tax debts with HM Revenue and Customs (HMRC) and to propose methods to facilitate these resolutions. However, he made it clear that the review would not reassess the government’s stance on the fairness of the loan charge itself.

This limitation has prompted the Loan Charge Action Group to express their disappointment, characterizing the review as a “complete betrayal.” Group founder Steve Packham criticized the government for what he perceives as a failure to genuinely investigate the origins and administration of the loan charge, as well as the roles played by those who promoted the tax avoidance schemes that led many freelancers to utilize them.

The backdrop of this situation dates back to 1999 when the Labour government introduced IR35, legislation aimed at classifying a significant number of self-employed freelancers as employers, thereby subjecting them to National Insurance contributions. This shift prompted many individuals to enter into schemes advertised by legal and financial professionals, enabling them to evade National Insurance legally.

Typically, these arrangements saw freelancers funneling payments to offshore companies, which would then lend the money back to them, with the expectation that the loans would not be repaid. Upon the government’s intervention to close this loophole, the Treasury imposed the loan charge, compelling freelancers to repay what was deemed backdated tax.

According to HMRC, approximately 50,000 individuals are currently impacted by the implications of the loan charge. In announcing the review, Murray stated, “The government believes that it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC.” He further emphasized that failing to do so would contradict court rulings and be unfair to the majority of taxpayers who have refrained from participating in such schemes.

Nonetheless, Murray acknowledged the concerns surrounding the loan charge, particularly regarding the magnitude of some payments and the ability of individuals to settle them within a reasonable period. He expressed that the review’s intentions are to provide closure for affected individuals, ensure fairness across the taxpayer spectrum, and establish adequate support mechanisms for those facing the loan charge.

The review will be overseen by Ray McCann, the former President of the Chartered Institute of Taxation, who is expected to deliver his findings by the summer. Conservative MP Greg Smith, co-chair of the Loan Charge All Party Parliamentary Group (APPG), voiced his disapproval of the review, stating, “This is not the review that was promised nor the review that is so desperately needed, and the APPG will continue to push for a genuine inquiry into this scandal.”

Source
www.bbc.com