Contractor Loan Charge under renewed debate by MPs

The controversial 2019 Contractor Loan charge has again been under the spotlight with renewed debate in the House of Commons. MPs spoke out on the ongoing concerns and implications for the thousands affected by the charge, highlighting some truly awful cases of the personal impact it has had on individuals.

During the debate, concerns were raised about the severe consequences of the Loan Charge, with MPs pointing to ten suicides, more than 20 incidents of self-harm or attempted suicide, and the distress faced by those who inadvertently found themselves in non-compliant payroll schemes. 

What is the 2019 Contractor Loan Charge?

The 2019 Contractor Loan Charge was a tax rule introduced by the UK government, specifically HMRC, to address the use of disguised remuneration schemes by contractors. It targeted those who had used such schemes dating back to April 1999, with the primary focus on those who had received payment of income in the form of loans, including through Employee Benefit Trusts (EBTs).

These arrangements typically involved contractors receiving income in the form of loans, often interest-free or at low interest rates, with the understanding that the loans wouldn’t be repaid. The goal was to reduce tax liabilities, as loans were not subject to income tax or National Insurance contributions.

The 2019 Contractor Loan Charge aimed to counteract these practices by taxing the outstanding loan balances at the point of the legislation’s introduction, and came into effect from April 5, 2019. This meant that contractors who had engaged in such schemes were required to pay income tax and National Insurance on the total amount of loans they had received, even if the loans were still outstanding.

The charge led to significant controversy and criticism from those affected, as many faced substantial tax bills, sometimes reaching into the tens or hundreds of thousands of pounds. Critics argued that the retrospective nature of the legislation was unfair, as it applied to loans received going back years.

In response to the widespread concerns and protests, the UK government introduced some changes to the legislation. These changes included provisions for settling tax liabilities over an extended period and introducing a repayment scheme for those facing financial difficulties due to the charge. Despite these adjustments, the 2019 Contractor Loan Charge remains a contentious issue.

Fresh debate & parallels with Post Office scandal

During the renewed debate, held on January 18th, numerous MPs criticised HMRC for operating without sufficient accountability to the government, highlighting a lack of oversight. They noted that HMRC does not provide public accounts, and the turnover of ministers doesn’t lend itself to the effective management of the department.

The debate also drew parallels with the ongoing Post Office scandal and its impact on sub-postmasters; there was even suggestion that the Loan Charge situation could itself be turned into a TV drama.

Speakers expressed deep concern on behalf of those impacted by the Loan Charge and thousands of contractors facing unmanageable demands. HMRC came under fire for pursuing open enquiries for schemes before 2011, transferring liability to individuals despite its own failings, and seeking additional payments from those who had already settled. MPs also highlighted the resolution put forward by tax professionals and called on the government to collaborate with all parties to find a fair resolution and for a full independent investigation, including into HMRC’s conduct.

These impassioned pleas nevertheless fell on deaf ears, with little reaction from the finance secretary to the Treasury, Nigel Huddleston, who rejected calls for a further hearing into the Loan Charge, saying “I do not believe a case has been made for another review”.

“Fairness must prevail”

Liquid Friday COO Joe Taffurelli has strong feelings on the subject. He commented:

“In the Loan Charge debate, we witness yet another chapter in the saga of who watches the watchers. The aggressive tactics deployed by HMRC on taxpayers demand not just scrutiny but a broader investigation into their practices. It’s time to consider a real, and upheld, ‘Treating Taxpayers Fairly Covenant,’ reminding us that even in the pursuit of revenue, justice & fairness must prevail. Under the current HMRC charter, they state, ‘We’ll assume you’re telling the truth unless we’ve good reason to think you’re not.’ (https://www.gov.uk/government/publications/hmrc-charter/the-hmrc-charter)However, one wonders how many individuals under HMRC investigation truly feel the embrace of this commitment to fairness.”

More on the Contractor Loan Charge

Loan Charge 2019 – Government overhauls controversial rule after review

HMRC Loan Charge hits home for thousands of contractors

2019 Loan Charge – the huge deal that no-one is talking about