An independent review of the Loan Charge will be led by Amyas Morse, former chief executive of the National Audit Office, it has been revealed.
Announced by Chancellor Sajid Javid, the appointment follows months of pressure from MPs, taxpayers and campaigners concerned by the controversial charge and its impact on people.
The Loan Charge came into effect on April 6 and applies to anyone who used so-called ‘disguised remuneration schemes’.
The legislation added a 45 per cent non-refundable charge on all loans advanced through the schemes – some of them dating back to 20 years ago – unless the individual had agreed with HMRC to settle their tax affairs beforehand.
However, many of the 50,000 people caught up in the issue are low paid and were persuaded by their employers to join the schemes. Many of them are reported to be facing bankruptcy.
Yet, at the time the schemes were set up, HMRC did not question their legitimacy.
The Treasury says Sir Amyas will report back with his recommendations by mid-November, ahead of the January deadline when individuals would need to pay the charge.
The review will consider whether it is an “appropriate way” of dealing with individuals that entered the schemes.
Instead of being paid a salary that would be subject to income tax and national insurance, workers in these schemes were loaned money — typically via an offshore trust — on terms that meant the debt was unlikely to be repaid.
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.”
The government says that while the review is under way the Loan Charge remains in force.
Federation of Small Businesses (FSB) national chairman Mike Cherry, said: “Telling sole traders that they’ll have an update on where they stand as late as November, with then potentially only two months to settle-up, is unreasonable, especially so in such an uncertain and unpredictable climate.
“The loan charge is causing misery for thousands of sole traders – many of whom were acting on the advice of employers or financial professionals when they agreed to schemes which were, at the time of participation, perfectly legal.
“Interventions like the loan charge make it impossible to plan for the future. Many who are playing fair when planning their tax affairs today will be wondering where else the Government might suddenly change the rules, start applying new laws to years past and demand big pay-outs.
“In future, HRMC should establish a tax efficiency white list, guaranteeing that – if the scheme is listed – you have cast iron protection from a retrospective grab if you use it.”
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