HMRC’s loan charge

HMRC’s loan charge - Good news!

Are you one of the 50,000 self-employed freelance workers affected by HMRC’s 2019 Loan Charge? There is good news. A recently set up pressure group is launching a legal challenge to have the retrospective element of the Loan Charge reviewed and reversed.

The background – clamping down on loans as salary substitutes

Back in 2017, HMRC introduced the 2019 Loan Charge. They describe it as a charge on ‘employment-related taxable loans made by third parties on or after 6 April 1999 brought within Part 7A ITEPA 2003 if they remain outstanding on 5 April 2019’. Agreed – a bit of a mouthful! In short, what the government is clamping down on the use of tax-free loans as salary substitutes. They now view this practice as unacceptable tax avoidance.

This is a practice that we advised against. From its initial introduction, our Tax Experts believed that the idea was flawed would result in unfortunate consequences. It seems that we were right. However, all is not lost.

A mis-sold scheme

Acting on the advice of leading tax barrister Robert Venables QC, the Loan Charge Action Group (LCAG), have mounted a legal challenge to this Loan Charge. They argue that contractee (the principle or client) mis-sold the Loan Charge schemes to the self-employed and freelance contractors. They argue that it’s the contractee who should be paying the tax and that the charge represents an unfair retrospective tax.

LCAG says that, if the Judicial Review is successful, the retrospective element of the charge will be reduced as HMRC will not be able to pursue closed years (years where the year-end has already passed).

In advice to members, it says: ‘Closed years should remain out of reach by HMRC as your normal taxpayer protections will have been restored. Open years will still be able to be pursued by HMRC. APNs (Accelerated Payment Notices) will remain. But it does mean that HMRC will need to continue their inquiries and can be pushed to conclude these, which then means there is an option for the conclusion to those inquiries to be challenged through the proper processes. Currently, HMRC are being very slow to conclude inquiries, possibly because the Loan Charge is on the horizon.’

The High Court will be hearing the Judicial Review in April or May 2019, with judgment expected in July. After its conclusion, either party will be able to appeal to the Supreme Court.

If you reached a settlement with HMRC before September 2018’s deadline, then you won’t be affected by the outcome.

An HMRC spokesperson said: ‘In the interests of the vast majority of taxpayers who play by the rules, we challenge tax avoidance whenever it occurs and will vigorously defend this action.’

Do you think the HMRC might be gunning for you with the loan charge? Why not give us a call? We’d love the chance to guide you through this potentially complex issue. We’re tax advisors with an intimate knowledge of tax law. Speak to us. After all – we’re here to help.

We’re here to help.


This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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