Contractors caught up in the controversial Loan Charge debacle could now have up to seven years to settle the tax bill.

The concession was made during a Treasury Committee inquiry last week and is hard-won through almost constant campaigning by MPs and the Loan Charge Action Group, amongst others, against the unethical disguised remuneration charges.

Who is eligible for the extended Loan Charge repayment time?

While contractors earning £50,000 a year or less already have five years in which to settle their tax bill, MPs objected that the disparity between £50,000 and a smaller annual income – common for young freelancers or smaller businesses – is not represented in the time scale allowed.

As a result of the criticisms made, those earning less than £30,000 a year will now be granted another two years on top (so a total of seven) to make their repayment.

Both of these arrangements have been described as ‘no questions asked’ and an ‘automatic right’ by HMRC’s Jim Harra.

Mary Aiston, another HMRC official present at the hearing, promised that ‘contractors who go forward to HMRC with a serious intention to settle, before April 5th 2019, will not be disadvantaged if repayments are ongoing past that date.’

Will HMRC be making any further changes to help Loan Charge contractors?

HMRC maintained that its aim isn’t to bankrupt those affected by the Loan Charge and will do everything possible to avoid that situation for targeted contractors.

Ms. Aiston stated that the authority ‘would not force those affected by the tax to sell their homes to pay their bills.’ She did suggest, however, that ‘in some circumstances, homeowners might be encouraged to take out a loan if they had equity in their property, or HMRC may ‘put a charge’ on it.’

She went on to again reaffirm that HMRC is keen to support affected contractors and find a suitable settlement for any schemes participated in.

What are the average debts expected to be incurred by the Loan Charge?

HMRC estimates £13,000 to be the average amount individuals will pay when settling their tax bill.

However, Tom Wallace, head of tax at WTT - a tax advisory firm representing more than 2,000 people affected by the loan charge - contested this figure. He asserted that the average debt of £13,000 was significantly lower than the average bills his clients were facing, and the scale of the debts meant people still faced a very real potential for bankruptcy.

‘Whilst we appreciate HMRC’s commitment that nobody will be forced to sell their home, unfortunately, it is not theirs to make,’ he said.

‘HMRC has never been able to force the sale of a home but instead has the ability to petition for bankruptcy. Should that happen, then the appointed bankruptcy trustee has an obligation to liquidate assets, including the family home. Quite simply, it is a commitment that HMRC cannot, and should not, be giving.’

Ms. Aiston also admitted that HMRC has ‘a lot more work to do’ to get the 50,000 people they predicted would be eligible for the Loan Charge to settle before the deadline.

Those that have been campaigning against the charge say the total figure is higher, sitting at about 100,000 people.

MPs were told that just 6,000 people have completed the settlement procedure with HMRC. It was unclear whether only 6,000 people had applied to settle or HMRC had only responded to 6,000 people's settlement requests though.

As of December, 60% of contractors who had requested settlement had not yet been sent a tax calculation by HMRC. Ms. Aiston maintains that HMRC aims to reply within four weeks to any initial correspondence sent by loan scheme users.

Should contractors be shouldering the full Loan Charge alone?

Despite the reassurances given, HMRC said that the affected contractors were ‘ultimately accountable’ for the schemes they used, not their advisers or the scheme providers.

Mr. Harra claimed that contractors would have had a ‘level of knowledge’ about the schemes they entered into.

Ms. Aiston added to his statement, saying: ‘Skilled people…signing up to a set of arrangements…[with] an offshore trust in the Cayman Islands or somewhere like that, [receiving remuneration] in the form of a loan that gets bigger and bigger and bigger [and] that they have no expectation of ever repaying. I’m not suggesting everybody needs to be an expert in tax legislation to spot that we might come and ask some questions about that.’

When asked by MPs why HMRC didn’t tackle the loans until Budget 2016, despite knowing of their existence as far back as 1999, Ms. Aiston allowed that HMRC could’ve done more to prevent the devastating retrospective tax bills now being inflicted upon contractors. She responded:

‘We appreciate that at the time [pre-2004], our strategy meant that we weren’t telling taxpayers enough about what we were doing about their case. We recognise that at the time our strategy meant we weren’t communicating regularly enough to keep them [Loan Charge contractors] in the picture.’

Mr. Harra appeared to agree, admitting that HMRC’s communication about the schemes since 2004 has been only ‘mounting.’

Unfortunately, this is where his humility appeared to reach its limit. His concluding comments on the subject were:

‘What evolved over time was our ability to get transparency in what was going on in cases, and the powers that we have to tackle tax avoidance. What was always there was the obligation on taxpayers to correctly complete their tax returns and to enter income on their tax returns, and our view is that this was always income that should have been put on tax returns.’

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