The UK Treasury is reconsidering key tax avoidance measures that have been criticised as overly aggressive by some MPs in an upcoming Finance Bill.
Expected to be effective in April 2019, the loan charge enable HM Revenue & Customs (HMRC) to impose taxes on employment arrangements that were considered legal twenty years ago.
These include workers that received loans via offshore trusts instead of being paid a salary. Terms of these loans meant they were rarely paid back and employers skipped Income Tax and National Insurance.
The “loan charge” was due to affect employees who benefitted from such schemes, dubbed “disguised remuneration”. By combatting such schemes, HMRC aims to protect £3.2bn that it said could be reinvested in public services.
However, a report from the House of Lords criticised HMRC for drawing up measures that unfairly hit contractors and freelancers rather than the firms which drew up the schemes.
Liberal Democrat MP Ed Davey said: “This review is about an important tax principle. The Government are in effect in breach of the rule of law with the retrospective nature of their loan charge.
“And the unfairness of that has brought misery to thousands of people. While Ministers have listened, the review that’s now been established must respond to the concerns of MPs across the House. Treasury Ministers have a duty to respond seriously and substantively.”
Davey tabled an amendment to the Finance Bill, which enables a review of the loan charge and submission of a report by 30 March 2019.
Loan Charge Action Group (LCAG) spokesperson Steve Packham said: “We are delighted that MPs have forced the Government into accepting a review of the appalling Loan Charge which, if it comes in, will destroy families and cost lives. This is a victory for the campaigners, for Parliament and for the rule of law.”