The Loan Charge Action Group is hoping for a Judicial Review to challenge the lawfulness of the government’s most brutal effort yet to tackle tax avoidance. We discuss this and how you can settle your tax affairs – if you are affected – in our latest blog on the 2019 Loan Charge.
HMRC will apply the ‘2019 Loan Charge’ to disguised remuneration loans issued since 6 April 1999 that are still outstanding on 5 April 2019. This is to penalise those who used such schemes and have not opted to settle their tax affairs or repay their loans in full.
But there’s a chance that the Loan Charge will be prohibited if a Judicial Review is launched and successful.
A Judicial Review could stop the 2019 Loan Charge
The Loan Charge Action Group (LCAG) behind the pledge to launch the Judicial Review faces a £1 million legal challenge.
A Judicial Review will check whether the decision to implement the charge is a lawful one. If the court finds that levying a fine against affected contractors is unlawful, it can issue an order to stop the Loan Charge.
The court however cannot legally enforce a decision on the defence (HMRC), but it’s said to be rare for a public body to act against an order of the court.
In order to reach High Court, the LCAG first need to raise £500,000. Then an additional £500,000 will be needed to potentially go through the Supreme Court and Court of Appeal. The whole process could take several years.
The LCAG cited section 6 of the UK Human Rights Act 1998, arguing that the Loan Charge is ‘an infringement of the right of individuals to peaceful enjoyment of their possessions (including their cash)’.
There is also a moral issue to consider. Thousands of contractors could have been unaware of the tax avoidance implications of taking out loans now considered to be ‘disguised remuneration’. Furthermore, contractors may have been told by dodgy payroll providers that using a loan scheme is completely safe and without recourse.
It’s also unlikely that all those affected will be able to simply hand over thousands of pounds to cover the loan charge or even repay the loans. This fact is already known to have led to feelings of distress, anxiety and in some cases depression.
HMRC has given those affected by the Loan Charge the option to register to settle their tax affairs.
If you want to settle your tax affairs
If you used a disguised remuneration loan scheme after 6 April 1999, you still have the option to settle your tax affairs. The window for registering to settle is closing fast, so if you wish to settle you should register to do so sooner rather than later.
HMRC asks anyone who wishes to settle their tax affairs to contact them as soon as possible in order to reach a settlement before the Loan Charge comes into effect.
Settlement terms are dependent on whether HMRC classes you as a contractor, employer or employee. Contractors will include those who provided services through an umbrella company or an agency.
Settlement terms could include:
- Income tax on the net amount of all your disguised remuneration loans
- Late payment interest – applicable for years where HMRC has enquired or is enquiring on your tax affairs
- National Insurance Contributions if you’re a self-employed contractor
- Any other penalties, including Inheritance Tax if applicable
More information can be found on the government’s guidance on disguised remuneration.
Should I just pay the Loan Charge?
If you are affected and do not wish to settle your tax affairs ahead of the Loan Charge implementation, you can choose not to contact HMRC and pay the Loan Charge (if the Judicial Review does not go ahead).
Whether you choose to pay the Loan Charge and any penalties/interest associated depends on your circumstances, such as how long you were in the loan scheme, whether you colluded to avoid tax and whether the umbrella company you used to take loans still exists. It is still unknown how high the Loan Charge will be, but this likely depends on the amount in loans you took and how much tax was avoided.
If you are affected by the 2019 Loan Charge and want to understand your options fully before making a decision, it is best to seek legal advice.
You can also find out more about the Loan Charge Action Group by visiting their website.
The 2019 Loan Charge is another means to an end for HMRC to clamp down on tax avoidance. Perceived tax avoidance will be a key topic in the upcoming Budget on 29th October. Contractors, contractor accountants and payroll providers will be waiting with bated breath to find out whether IR35 reform will come to the private sector.
Keep a look out for our blog and guidance post-Budget, and follow us on Twitter to see us live tweet the Budget from 15:30 on Monday, 29th October.
Want to find out our predictions for the Budget? Read our latest article on ContractorUK.