The Government has published its response to a major new report on controversial tax enforcement powers.
HM Revenue & Customs (HMRC) asked the Treasury Sub-Committee to review its policies and approach to tax avoidance schemes, such as the contractor loan charge, earlier this year.
The committee came back with the paper, entitled ‘Disputing Tax’, in July, publishing a number of conclusions and recommendations.
A comprehensive response has now been published by the regulator, accepting much of the committee’s analysis.
The review generally favours the Government’s approach to clawing back tax under the Contractor Loan Settlement Opportunity, but questions its effectiveness and fairness in some instances.
The loan charge was first proposed in 2016 to tackle tax-avoiding remuneration arrangements, known as disguised remuneration schemes. Under such schemes, employers pay workers in loans instead of cash. However, the loans are routed through low-tax jurisdictions and are rarely repaid, meaning the company nor the employee do not have to pay employment taxes. The loan charge scheme gave users three years to either repay the loan or settle the tax due with HMRC, or face an income tax charge on the stock of outstanding loans.
According to the review, there have been “delays in providing settlement terms to those who wished to settle their affairs” under the scheme. The Government has acknowledged this and confirmed that “no one who provided the necessary information by 5 April 2019 will be disadvantaged if settlement of their case takes longer as a result of HMRC delay”.
The Government has also accepted that it would not be right to pursue the charge on individuals in “closed tax years in which participation in a loan-based scheme had been fully disclosed”.
The report comes after HMRC also asked the National Audit Office (NAO) to lead an independent review of the controversial loan charge after critics raised concerns about the scheme.
With the charge being backdated as far as 20 years, taxpayers could face seismic penalties in the tens or even hundreds of thousands of pounds.
Click here to access the full report.
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