Rishi Sunak slammed for ‘doubly disappointing’ response to controversial Loan Charge
Ruth Cadbury calls on government to review loan charges
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In recent years, difficulties with the Loan Charge have befallen the self-employed as well as contractors. Loan schemes, otherwise known as “disguised remuneration” schemes, have been used to avoid paying National Insurance as well as income tax. The Loan Charge, then, adds all outstanding loans and taxes them as income within one year.
As a result, individuals are likely to pay tax at a higher rate than they would have at the time they were paid in loans.
The scheme was launched in 2019 with the effort to address tax losses for the Government, but largely affected self-employed individuals as well as those who have to deal with IR35 changes.
The legislation was approved by Parliament, and HMRC was responsible for administering loans under these circumstances since 1999, that were still outstanding until April 5, 2019.
However, with outstanding loans taxable as income in one go, there are often costly liabilities to meet.
Some individuals will be able to apply for a refund or waive from the Disguised Remuneration Repayment Scheme 2020.
For certain voluntary payments of Income Tax and National Insurance, HMRC could refund amounts paid in disguised remuneration scheme settlements, or waive amounts which have not yet been paid.
A Freedom of Information request recently submitted by The Telegraph revealed details about the Loan Charge.
The request showed HMRC has refunded £3.6million to 50 of those who paid the Loan Charge.
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As of April 2021, the Revenue had received nearly 1,850 applications, but the complex nature of settling these repayments mean the process is taking longer.
But this response has not been deemed good enough by certain groups.
IPSE, the Association of Independent Professional and the Self Employed, has slammed the Government for what it has described as a “sluggish” response.
For those impacted by the Loan Charge, it has said, a slow refund process is particularly disappointing.
Refunds, it added, should be processed as quickly as possible to provide Britons with the level of support they need.
Andy Chamberlain, Director of Policy at IPSE commented on the matter.
He said: “After the damaging and unjust mess of the Loan Charge scandal, affected contractors should not have to be applying for a refund at all: they should have been automatically repaid.
“It is therefore doubly disappointing that the Government has been so sluggish to refund just a small proportion of those affected.”
Mr Chamberlain went on to draw attention to the fact the Government had excepted the recommendation of the Sir Amyas Morse Review.
This was an independent Loan Charge Review, which raised certain concerns about the policy.
However, ultimately, Sir Amyas stated he supported “the essential purpose of the Loan Charge”.
As a result, Mr Chamberlain stated, the Government should “work to ensure all refund applications from contractors who were negatively affected by the Loan Charge scandal are processed as quickly as possible”.
He added: “IPSE are still deeply troubled by the approach Government took to the Loan Charge.
“Instead of targeting the individuals who entered into these schemes – in many cases unwittingly – it should have gone after the true villains: the promoters and providers of disguised remuneration schemes.
“Government should also look to the future. The changes to IR35 have pushed huge swathes of the contractor population into the unregulated umbrella market where disguised remuneration schemes are still being promoted.
“Government must clear up the mess after IR35 and ensure more contractors do not end up entangled in these schemes.”
A report undertaken in the last few weeks by the Loan Charge All Party Parliamentary Group (APPG) warned of the consequences of the Loan Charge.
The study stated the charge is “patently unaffordable” for many people who are impacted by it.
The report added: “HMRC seeking to collect it and enforcing as planned will have devastating consequences for many.
“Thousands of people are projected to go bankrupt, to have to sell their homes, and with many people unable to work and remain on state benefits as a result.”
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