IR35 is the Government’s tax rules covering off-payroll working, and largely applies to contractors who are not deemed to be self-employed. For example, where an individual has set up their own personal service company rather than being paid for work directly. IR35 rules are designed to ensure that workers under these arrangements pay broadly the same tax and national insurance as employees would.
Many people subject to IR35 rules entered into ‘disguised remuneration’ arrangements, whereby instead of being paid directly trust was established which ‘loaned’ the worker money. Under this arrangement the beneficiary would have to pay fees, however it was understood that the loan was unlikely to ever be repaid, and payment was not subject to Income Tax or National Insurance Contributions.
The Government has deemed these disguised remuneration schemes as tax avoidance and has introduced the loan charge, aimed at ensuring those who entered into these schemes pay the level of tax that would have been due if they had been paid as an employee. The charge applies to loans made since 9 December 2010 if they were still outstanding on 5 April 2019.
The concern of many people now subject to the loan charge is that many were informed these schemes were fully compliant with HMRC rules, and yet the introduction of the loan charge means they will now end up receiving less than if they had been employed directly, as the charge is levied on top of the fees already paid. The fact that the loan charge is dated back to 2010 is also challenged as many see this as retrospective taxation.
HMRC’s position is that, as the payments made under these schemes were issued as loans, if the loans had not been repaid by April 2019 they would still have been ‘active’ in terms of current financial liabilities, hence why the loan charge can be applied.
There is no doubt this is a complicated and controversial area of law. Many people who entered these schemes did so in good faith, or on the advice of professionals who they trusted as experts. However, some also entered these schemes in order to minimise tax liabilities, and all participants did benefit from tax avoidance.
As a point of principle, I believe it is right that the Government clamps down on tax avoidance measures, and measures are taken to ensure those that engage in them are made to pay the tax that would otherwise have been due. However, I also understand that due to the scale and length of time these schemes operated, the impact the loan charge has had on some individuals has caused substantial concern and distress.
As such, I support the changes implemented following Sir Amyas Morse’s independent review of the loan charge policy and its implementation. In particular, in order to reduce the immediate financial burden, I welcome the greater flexibility over the way the loan charge can be paid, including establishing pay arrangements over a minimum of 5 and 7 years for those with disposable assets and earnings less than £50,000 or £30,000 respectively.
Even with these changes I understand that the loan charge has caused significant personal difficulties to some. Should any constituent be affected by this and wish me to support them in regard to their specific personal circumstances, I am of course happy to assist and wold urge them to contact me at firstname.lastname@example.org.