Loan charge, review and options

I have previously acknowledged the work of LCAG in securing the review of the loan charge, now due to be published no later than 30th March 2019. It was a great effort.

It is now important that the good work done to date is not wasted and that the Government (especially HM Treasury) is properly held to account and is not allowed use the same old excuses and flawed logic that saw the charge introduced, as reason to keep it. We (WTT Consulting) will be producing a dossier of the sort of sound bites used by Messrs. Hammond, Stride, Glen and others, and the appropriate responses. This we will publish on our website and public fora, but it will also be available upon request. Go to for a free copy.

All contractors now need to be thinking about the next stages should the review conclude that the loan charge should be abolished, time limited or remain in place. This thinking also needs to consider the wider HMRC campaign against the contracting sector.

The “big picture” elements I have included below. I will in due course develop each one to provide depth and more information.

Let’s start with good news and assume that the loan charge is consigned to be a poorly remembered nightmare. What then?

Well HMRC consider that the loans paid to contractors from 2000 to date, are taxable income. They claim – and it’s repeated by Stride – that they have a series of victories against such schemes “proving” that the income is taxable. Do they?

The one most often cited is the Supreme Court decision in the “Rangers” case. Here the football club paid players and executives via an EBT. Moreover the EBT was essentially run and directed by the football club – the trustee was a rubber stamp. Nonetheless, the Court held that the loans were taxable income. Sadly for HMRC, the Court also said that the employer was liable. Perfect – why then is HMRC taking NO ACTION they can prove against employers? Instead, HMRC is fond of conflating EBT and contractor loan schemes for ALL PURPOSE except the collection of tax from those found liable.

HMRC does have victories against EBT schemes but some of these considered the deductions claimed by employers, some the use of the funds, some the mechanisms used to pass value. Victories against a straightforward contractor loan scheme? No.

HMRC persuaded John Glen MP to tell a Commons debate that they had a victory against a contractor loan scheme. We were intrigued and enquired via a FOI request. It seems that the “victory” was in a case taken to decide if a tax avoidance scheme should have been disclosed. Moreover a scheme that used what might be called a “difference engine” to generate an economic and tax result. About as far removed from a loan scheme as you can imagine.

We can find no other “victories”.

We conclude therefore that to make good the oft repeated claim that such schemes were always “defective” (whatever that means), a case will need to be taken.

We are aware that one such is itching to go ahead but has been frustrated by HMRC delaying tactics. We caution HMRC here that such moves are increasingly coming to the attention of Judges who disapprove and who show every sign of holding the agency to higher (and appropriate) standards.

Other cases (usually backed by those connected to various schemes) are less certain to go ahead. There are a number of reasons why they may not, but one is that HMRC is very adept at applying pressure, so much so that many individuals, faced with uncertainty over tax, timing and costs, chose to leave a group for the sake of their own sanity and their families health.

Our own client group was formed to find a reasoned final position, recognising the faults and actions of all the parties in the equation. We have not failed, but being realistic, we are now gearing for a challenge in Court, backed by several thousand people.

Tomorrow I’ll consider the impact should the loan charge be restricted by time, including our view on a number of “solutions” available in the market to avoid the charge.

In the meantime, all contractors need to be aware that the loan charge review, whilst a step in the right direction, is not the end of the process.

Beware the wounded animal that is HMT/HMRC because they are unpredictable.