If you’re a contractor, you’ll most likely to have heard about the Loan Charge. The Loan Charge was announced in the Finance Act 2016 and has been met with disapproval and resistance from thousands of contractors across the country. We’ve taken a closer look at what it involves, and how the latest developments affect the self-employed.
What is the Loan Charge, and who does it apply to?
The Loan Charge applies to contractors who took out ‘disguised remuneration schemes’, sold on the basis that Income Tax and National Insurance contributions did not need to be paid on their earnings.
Disguised remuneration schemes involve contractors being paid in the form of a loan by a third party, simply to avoid tax. As they were set up to provide contractors with an opportunity to minimise their tax liability. The loan charge was introduced with the Finance Act 2016, however it is retrospective in nature and this has angered contractors, since they were often unaware that these schemes were not compliant at the time and are now responsible for any missing tax.
As the government looks to regain missing taxes dating back as far as 1999, this means that many contractors now face paying large sums of money to HMRC. Under the legislation, any ‘loans’ that remained outstanding at 6th April 2019 became taxable as income on that date. The HMRC website has a page dedicated to advice and guidance regarding payment plans and settling any tax.
Review of the Loan Charge
Following criticism from more than 100 MPs and campaigning from those affected by the charge, Sajid Javid commissioned an independent review of the disguised remuneration loan charge in September 2019.
The review aims to fulfil the following objectives:
- Whether the Loan Charge is an appropriate way of dealing with tax avoidance through the direct application into disguised remuneration schemes.
- Whether the changes announced by the government address any concerns on the impact on individuals, including affordability.
The review will provide recommendations to the government, and the conclusions will be made public at a time decided by the Chancellor of the Exchequer. Due to the General Election on the 12th December, the report will be delivered to the new government in due course. The government will carefully look through the report and publish their response soon after.
Next steps and reaching out for support
Whilst the review is underway, the Loan Charge remains in operation, you should continue to make any agreed payments whist this is ongoing. Once the government has formed a response, HMRC will publish details on your next steps should your Loan Charge liability change as a result.
As we await a response, individuals are urged to speak out and seek support. The Loan Charge Action Group was formed to raise awareness of the charge, and support contractors who have been affected.
As the next steps unfold and we find out what’s next in store for contractors, we will share these updates with you. Stay up to date with any further developments around the Loan Charge, by visiting our blog.