The Latest Review of the 2017 Loan Charge Legislation

Overview

A new review of the 2017 Loan Charge legislation is now underway, led by Ray McCann, former president of the Chartered Institute of Taxation (CIOT).

Announced in the Autumn Budget, HM Treasury has recently provided further details on what this review will entail.

A Brief History

The Loan Charge legislation has had a significant impact on many contractors, including those on lower incomes, who were mis-sold tax schemes.

Before 2017, HMRC sought to reclaim lost revenue from arrangements it deemed to be tax avoidance. These disguised remuneration schemes involved individuals receiving payments as loans rather than salaries, often through trusts. These loans were never intended to be repaid, allowing users to avoid Income Tax and National Insurance Contributions (NICs).

A key turning point was the Rangers Case, in which HMRC successfully argued before the Supreme Court that such schemes were unlawful tax avoidance. This ruling provided justification for HMRC to pursue individuals and businesses that had used similar arrangements.

As a result, the Loan Charge legislation was introduced to target outstanding disguised remuneration loans dating back to 1999, with the charge itself applied as additional taxable income in the 2018/19 tax year. This led to unexpected and often devastating tax bills for thousands of individuals, many of whom had participated in these schemes based on professional advice.

Critics argued that the Loan Charge amounted to retrospective taxation, which was unfair. MPs, campaigners, and the Loan Charge Action Group called for its suspension and review. In response, the government commissioned an independent review by Sir Amyas Morse in December 2019, which led to key changes:

• The charge was limited to loans taken after December 9, 2010 (instead of 1999).
• Those who had fully disclosed their schemes to HMRC but were not investigated were exempted.
• A spreading election was introduced to reduce tax liabilities by allowing payment over several years.

Despite these modifications, the Loan Charge remains highly controversial, with ongoing debates about its fairness, legality, and impact on affected taxpayers.

What Can We Expect from the New Review?

Unlike the first review, which examined the history and fairness of the Loan Charge, this new review is not about revisiting the legislation itself. Instead, it focuses on ensuring those with outstanding liabilities can resolve them with HMRC in a fair and structured way, without compromising general fairness for taxpayers.

McCann has been tasked with reviewing:

• The current settlement terms in place for affected taxpayers.
• The effectiveness of HMRC’s settlement and debt management processes.
• Ways to help those who have not yet settled reach a resolution with HMRC.
• How new settlement proposals can be targeted effectively while avoiding excessive administrative burdens for HMRC.

From the available information, the review appears to focus more on procedural improvements and individuals’ ability to pay, rather than reducing tax liabilities or reconsidering the fundamental fairness of the Loan Charge.

A statement from HMRC makes this clear:

“Solutions should not undermine the fundamental principles of the tax system-that individuals are responsible for their own tax affairs and that tax owed should be paid. Given our approach to closing the tax gap and the fiscal position, we will not be able to accept recommendations that do not meet these criteria.”

The review is expected to conclude in Summer 2025, with the government’s response anticipated in the next Autumn Budget.

How Will This Affect You?

HMRC has also outlined how it will communicate with affected taxpayers:

• Assigning a named HMRC contact for each case (if not already assigned).
• Clarifying whether a taxpayer’s arrangements fall within the scope of the review.
• Explaining next steps for those affected.

Unlike the previous review, this one does not appear to consider repealing or softening the Loan Charge itself. Instead, it focuses on how HMRC can improve processes and encourage taxpayers to settle.

If you are affected, you may have the option to pause any ongoing HMRC enquiries until the review is complete. However, it is unclear:

1. Whether HMRC will allow this in all cases.
2. If pausing an enquiry will even be beneficial, as interest on unpaid tax will continue to accrue.

Ultimately, the Loan Charge remains in force, and this review does not appear to offer significant relief in terms of reducing tax liabilities.

Next Steps

For those impacted, it is advisable to seek professional tax advice and remain updated on developments as the review progresses. Please do get in touch