Opponents of the loan charge claim it offends the rule of law and could damage the health and wellbeing of thousands of people.
The All Party Parliamentary Loan Charge Group (APPG) has accused the Treasury of producing a report that is not a “genuine review” of the controversial loan charge policy.
A member of the Loan Charge Action group told The Yorkshire Post: “The harrowing thing for me personally is that there are still a huge number of people impacted by this draconian legislation that are completely unaware.
“Brexit has allowed the Government to implement this legislation unchallenged.”
The action group member said that there were more than 3,000 people and their dependents affected by the loan charge in Yorkshire alone.
The loan charge is a charge on all payroll remuneration through loans made since 1999, in the form of a 45 per cent charge on all loan payments in that time.
The charge is levied as a back tax and will be demanded by HMRC in the 2019 to 2020 tax year. According to the APPG, this will mean that everyone who has been employed through such a structure will be hit with a retrospective charge in the 2018-19 tax year in one go, meaning “huge and wholly unaffordable bills”.
The loan charge poses a risk to the wellbeing of thousands of people, the APPG said.
In a statement the APPG added: “The loan charge is a retrospective charge that comes into effect in April this year and overrides existing statutory protections, allowing HMRC to go back and demand tax for arrangements that were legal.”
Liberal Democrat Sir Ed Davey MP, chairman of the Loan Charge APPG said: “The Treasury report fails to deal adequately with the widely held view that the loan charge represents a change in the tax law for
past years - and offends against the rule of law. The loan charge is retrospective in many aspects and sets a dangerous precedent as an attack on long-standing taxpayer protections.”
A Treasury spokesman said: “These schemes were designed to allow individuals to avoid paying income tax and National Insurance. The loan charge means people paying themselves through loans, often from offshore trusts, will now have to contribute their fair share to pay for our public services.
“HMRC has never approved these schemes and they have never worked. The report goes further than agreed, detailing the impact of the policy on individuals and measures to support vulnerable taxpayers with large bills to pay.
“We have listened to the concerns of MPs, and have outlined settlement terms that give those earning less than £30,000 a minimum of seven years to repay.”
Where individuals are affected by the loan charge, HMRC will take full account of individuals’ ability to pay, a spokesman said.
With regards to the claims that the loan charge is a retrospective measure, the Treasury said there had been a written Ministerial statement on employment-related tax avoidance arrangements in 2004 and legislation in 2011 specifically to tackle “this form of avoidance”. However, it was clear by the Budget of 2016 that these schemes continued to proliferate, the spokesman said.
That is why the Government announced it would introduce a charge on the balance of any loans still outstanding at April 5 2019, in order to ensure that appropriate time was provided to clear up these arrangements, the Treasury spokesman added.