At least 69 MPs have signed a letter demanding that the Government suspends the loan charge for six months to allow for an independent review. Opponents of the loan charge claim it undermines the rule of law because it is a retrospective charge, although the Treasury disputes this claim.
A debate about the loan charge was suspended when water leaked into the House of Commons chamber, but members of the The All-Party Parliamentary Loan Charge Group (APPG) are demanding immediate action to suspend the charge.
The loan charge was introduced in response to the Treasury’s concerns about “disguised remuneration schemes” which involved individuals being paid through loans, usually via an offshore trust in a low or no tax jurisdiction, which they did not have to repay.
The Treasury has argued that because the money is claimed to be a ‘loan’ rather than earnings, income tax and National Insurance contributions go unpaid, costing the taxpayer hundreds of millions of pounds a year.
In an open letter to Mel Stride MP, Financial Secretary to the Treasury, the APPG states: “The will of the House of Commons was clear, with many
Conservative MPs criticising the loan charge and making clear they supported the motion. As you know, there have been suicides of people affected by the loan charge.
“With the huge anxiety thousands of people are facing, we believe that a pause and a review is vital and the right and responsible thing to do.”
The MPs who voiced concerns about the loan charge during the debate, included Justine Greening MP, who said some of her constituents in Putney had been affected.
She told the House: “I have young constituents who are contractors and have been unwittingly caught up in this. They did all the right things, including asking their accountant and checking whether a QC had approved a scheme.
She added: “An older gentleman who is caught up in it is looking at having to sell his home. He is in his seventies and clearly has no ability to go back into the workplace to even begin to recoup some of the money that HMRC is now claiming he should pay.
She added: “I think that HMRC has simply got it wrong and is striking the wrong balance.
“The bottom line is that, overwhelmingly, people declared these arrangements transparently. They sent in their tax returns and, as has been said, some were given tax rebates. They were given no indication that HMRC was ever going to come back to those years.”
David Davis, the MP for Haltemprice and Howden, said on Twitter: “The retrospective application of the 2019 loan charge is absolutely wrong. If the Government doesn’t put it right then I, and the House of Commons, will act to limit HMRC’s ability to take retrospective action against hard working taxpayers.”
A HM Treasury spokesperson said: “As announced at Budget 2016 and in accordance with the legislation, the loan charge took effect on 5th April.
“The loan charge means people paying themselves through loans, often from offshore trusts, will have to contribute their fair share to pay for our public services.
“HMRC is committed to providing affordable payment arrangements to people paying the charge and the enhanced support some customers may need.”
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.
It is levied as a back tax and is demanded by HMRC in one tax year, 2019-2020. Everyone who has ever been employed through such as structure will be hit with a retrospective charge in the 2018-19 tax year in one go, “meaning huge and wholly unaffordable bills”, according to the APPG.
The APPG argues that loan remuneration arrangements were legal and were approved by lawyers.
Users were not challenged by HMRC at the time, the APPG said.