Loan Charge should be delayed says Ross Thomson MP
Following on from his question to the prime minister during Wednesday’s PMQs, Ross Thomson MP spoke to the Review about the need to delay the introduction of the loan charge. The 2019 loan charge is a government measure whose purpose is to tackle a tax avoidance scheme known as “disguised remuneration.”
Disguised remuneration involved companies paying money into an “umbrella company” which would then give a “loan” to a self-employed worker. As this payment was deemed a loan rather than a salary, the company paid no employer national insurance and the self-employed worker was not charged tax or national insurance, provided they paid an amount of interest on the loan, which was often far less than what would have been charged if it was taxed.
HMRC have ruled that these “loans” were in fact “disguised” pay although many freelancers state they were not aware of the intricacies of the system and thought they were simply paying an administrative fee.
Under the loan charge 2019, all income tax and national insurance payments dating back to 1999 will have to be settled before 5 April 2019. If this is not completed by this time, additional charges will be applied.
According to The Telegraph, roughly 50,000 contractors are now facing huge bills. They report that these schemes were widely considered to be legal at the time and state that many were falsely advised by scheme promoters that the scheme had been approved by HMRC and leading QCs.
They have also reported that larger accountancy firms, such as KMPG, Deloitte and PwC, advocated the use of similar schemes.
Both have since said that while they were briefly engaged with similar schemes, they ceased after HMRC made clear they were not acceptable.
Those that engage in tax avoidance schemes are usually given a “declaration of tax avoidance scheme” number which they submit on their tax return.
When the scheme is declared, HMRC are typically given six years to investigate to determine any wrongdoing before requesting back taxes.
A 20-year interval, which is currently being applied to the loan charge 2019, is only enforced when taxpayers are deemed to have “deliberately misled” the taxman.
Those facing the loan charge have been offered settlement terms for the time they were engaged in these “disguised remuneration” schemes.
These terms would be less costly than the full charge as the proposed charge would roll all of the payments into one year and charge tax on this gross figure.
Many facing this charge, however, feel they are being “bullied” into settling.
Many businesses and individuals are now facing virtually unpayable tax bills for something they did not realise was illegal.
Ross Thomson, MP for Aberdeen South, has been a vocal critic of HMRC’s actions over the loan charge. Following up on his question to the prime minister, Ross told The Parliamentary Review that he believes the charge should be delayed until a proper review has been taken place.
He stated: “As I made clear in my remarks in the chamber yesterday, urgent action is required to delay the Loan Charge.
“I have asked the prime minister to intervene, as I do not believe the Treasury has acted in good faith. Many of my constituents, and hundreds of thousands of people across the UK, are faced with enormous tax bills through no fault of their own.
“They were told repeatedly that these schemes were above board. The stories that we are now hearing are nothing short of personal catastrophes.
“I hope that we will now see a genuine review and a delay of at least six months to allow that review to take place.”