The Federation of Small Businesses (FSB) has opposed the Government’s plan to retrospectively tax self-employed workers who have historically made use of alternative remuneration schemes.
Commenting on the Government’s recent confirmation that it would review the ‘loan charge’, the FSB said the tax was “unfair” and “unacceptable”.
Under the proposed scheme, the loan charge will affect users of “disguised remuneration schemes” who haven’t repaid their loans or signed a contract for settlement with HM Revenue & Customs (HMRC) by 05 April 2019.
Disguised remuneration scheme users are defined as workers who take their income in the form of loans instead of ordinary remuneration, often resulting in lesser Income Tax and National Insurance liabilities.
According to the latest reports, the loan charge is estimated to affect up to 50,000 taxpayers, with 65 per cent of those working in the business services sector, for example, management and IT consultants.
The loan charge scheme was introduced after the Government found that alternative remuneration scheme workers earned twice as much as the average UK taxpayer.
However, Mike Cherry, national chairman of the FSB, has argued that the loan charge acts as a “tax grab” on self-employed individuals who were “acting within the law when they made use of alternative remuneration schemes many years ago”.
“In a lot of cases, these individuals are not financial experts earning huge sums – many were acting on the advice of big employers or professional third parties. They are people who could lose everything if the loan charge is enforced,” he said.
“Retrospective taxation is unacceptable. It’s not fair to change the rule book and throw it at those who played fairly by the old rules in the past.”
The upcoming review of the loan charge will require the Treasury to “review the effect of the changes made by sections 79 and 80 and compare them with other legislation relating to the recovery of lost tax including specifically the loan charge provisions of Schedules 11 and 12 to the Finance (No. 2) Act 2017.”
For help and advice on any of the issues discussed in the blog, please get in touch.