The review, led by Sir Amyas Morse, was commissioned to look at the impact of the charge, which was introduced to tackle what the Treasury described as “disguised remuneration schemes”.
Sir Amyas, the former head of the National Audit Office, has confirmed the schemes were a form of tax avoidance but made a series of recommendations about the design of the charge and its impact on those in its scope.
In a statement, the Treasury said: “The Government recognises the concerns raised in the review about the impact on individuals and fairness of some aspects of the loan charge. To address them, all but one of the recommendations have been accepted.”
Following the review the Government will make changes so that the loan charge will now only apply to loans taken out on or after December 9 2010. The review found that legislation announced in 2010 removed any doubt that tax was due.
It will also not apply the loan charge to users of loan schemes between December 9 2010 and April 5 2016 who fully disclosed their schemes on their tax return and where HMRC failed to take action.
The Treasury will also allow users to defer filing their returns and paying their loan charge liability until September 2020.
It will also allow taxpayers to split the loan balance over three tax years to make bills more affordable.
The Treasury has also revealed that it will invest in a new HMRC team to collect tax from those who used the avoidance schemes pre-2010.
The statement added: “The package of measures announced today are estimated to reduce bills for more than 30,000 people subject to the loan charge, more than 60 per cent of the total number of users. That includes an estimated 11,000 who will be taken out of it altogether.”
Sir Amyas Morse, who conducted the independent Review, said: “The foundation of our tax system is fairness and where this is undermined through avoidance schemes it is right that these are tackled. However, in doing so, the government and HMRC must act proportionately and responsibly.
“As my review makes clear, the design and delivery of the Loan Charge didn’t get the balance right between tackling tax avoidance and protecting the rights of taxpayers and, in some cases, has caused serious distress to the individuals affected.
“I’m pleased to see Government commit to act on the recommendations of my review, bringing the loan charge back into line with the wider tax system, better protecting those who are least able to repay and providing certainty for all those affected.”
Sir Amyas Morse told The Yorkshire Post that he believes a new strategy is needed to examine intermediaries.
He added: “It’s outrageous people are giving advice to individuals who don’t have a sophisticated understanding.”
He said: “I’m disturbed by the fact that so many people are taking out loan schemes.”
He said he was deeply affected by the evidence given by people affected by the loan charge including those who had lost loved ones.
Sir Amyas said his report also called for “a much higher level of accountability as to how (HMRC) powers are used.”
Financial Secretary to the Treasury Jesse Norman said: “We welcome this careful and considered report, and I thank Sir Amyas and his team for their work.
“There have been important public concerns about this policy, and that is why we commissioned this report and have responded so quickly to it.
“The changes we are making go to the heart of Sir Amyas’ concerns about the fairness and application of the Loan Charge, which he accepts in principle.
“We also have plans under way to crack down further on the promoters of these avoidance schemes.”
“Among other recommendations in the Review, HMRC will – once legislation has been passed – repay parts of some settlements reached with taxpayers where they had voluntarily paid amounts due for earlier years.
“New guidance will be published to help users of the schemes understand what they have to do – and extra time will be provided so that users of schemes can defer sending their return, and paying the tax for 2018-19, until the end of September 2020.
“The Government remains committed to tackling tax avoidance – which deprives the Exchequer of funds for vital public services and is unfair for the vast majority of taxpayers who pay the tax they owe at the right time.”
The Loan Charge Action Group (LCAG) said it welcomed the publication of Sir Amyas Morse’s Loan Charge review report, the fact that the Government have at the same time issued its response and announced that they will change the Loan Charge legislation.
It added: “The full report is very complex and will require some time for a full analysis to be made, however this is our initial response.
“We warmly welcome that the unjustifiable and unacceptable Loan Charge legislation is to be amended in 2020 and that the Government have accepted most of the review recommendations.
This is as a direct result of the efforts of LCAG campaigners, the many MPs who supported their constituents and the work of the Loan Charge All Party Parliamentary Group. The report has been rightly critical of the Loan Charge legislation as it is and also of HMRC.
“There are significant changes to the law as is stands, which are positive, though we still believe a better solution would have been to drop any retrospective application and for the Government to instead focus on stopping promotion of schemes going forward.
“Whilst we continue to believe that any retrospective application of the Loan Charge is wrong, we welcome that the review has concluded that twenty years of retrospection was unjustifiable. We welcome that loans made before 2010 will no longer be subject to the Loan Charge. This shows that the legislation as passed undermined the rule of law, which vindicates the work of LCAG. We do still believe that it is wrong to have the Loan Charge retrospectively apply between 2010 and 2017, when the law was actually passed - this still sets a dangerous precedent.
We also welcome that closed years, from 2010-2016. where people disclosed scheme use, will no longer be subject to the Loan Charge. This is however unfair on those who were advised not to disclose or that they did not need to disclose. Individuals declared their usage of loan arrangements based on professional advice and people will now be impacted for following advice or on the basis of HMRC taking action. This is not fair to a large proportion of people - this is a point we will be asking MPs to look at.
“We welcome that those who were pushed into settlement by HMRC, to avoid the threat of the Loan Charge, will now be refunded money that they are no longer required to pay.
“We have consistently and repeatedly called for a delay to the Loan Charge self-assessment deadline and we are pleased to see that this has now been delayed until 30th September 2020, to allow time for the relevant legislation to be passed through Parliament. HMRC are however still asking people to declare on 31 st January 2020 if they can; we believe that there should be a full and proper suspension of any reporting requirements, until the legislation has been passed.
“We are also disappointed to see that there is no recommendation that the underlying tax issue should be resolved. Many people still face the threat of, or have paid, Accelerated Payment Notices (APNs) - these could be for loans that are now out of scope of the Loan Charge, further enhancing the unfairness of this situation.
Overall the changes will help some people and not others. Some people will still be facing life- changing retrospective tax bills and the inevitable mental health impact as a result of the loan charge legislation, even once amended.
Loan Charge and to work with MPs for a fair and just outcome.”
Steve Packham, Spokesperson for the Loan Charge Action Group said: “The Loan Charge Action Group welcome the fact that Sir Amyas Morse has recommended that the retrospective Loan Charge legislation must be changed and that the Government have agreed to do this.
“This is as a direct result of the efforts of LCAG campaigners, the many MPs who supported their constituents and the work of the Loan Charge All Party Parliamentary Group.
“We welcome that it’s now been accepted that it is wholly unacceptable for this retrospective law to apply as far back as 1999, which was disgraceful, and that closed years prior to 2016 will no longer
be subject to the Loan Charge. These are things that clearly undermined the rule of law. However we continue to believe that the Loan Charge should not apply retrospectively at all and are
concerned that many people will still be seriously impacted.
“This is a big step forward, with a clear commitment that this dreadful law will be changed, a law that has already tragically cost lives. The Loan Charge Action Group will continue to campaign for all those facing the Loan Charge and we will be working with supportive MPs to push for fairness for all those facing the Loan Charge.”
Sir Ed Davey MP, Liberal Democrat MP for Kingston and Surbiton and Chair of the Loan Charge APPG in the previous Parliament, said: “At last we have the news that the draconian Loan Charge legislation is to be significantly amended in Parliament next year. This is great news and a testament to the campaigning of the Loan Charge Cross-Party Group I established, the Loan Charge Action Group and other campaigners.
“There are welcome and significant changes, yet I still believe there remain injustices which will need further changes, including the removal of all aspects of retrospection.
“I intend to re-establish the Loan Charge APPG for the new Parliament to examine these proposals in more detail in the New Year and we will seek to work constructively with the Government before and during the passage of the legislation when it comes before Parliament.”