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Campaigners have rejected the government’s independent review into a tax scheme, known as the loan charge, as a “sham”. This controversial tax law was introduced to close a loophole and to recover backdated taxes. However, it resulted in freelancers facing huge bills because of how it was implemented. Treasury Minister James Murray said that the review would look at the obstacles faced by people who owed money and how they could be encouraged to resolve their affairs with HMRC. Despite this, the review would not change the government’s viewpoint that the loan charge is reasonable.
Founder of the Loan Charge Action Group, Steve Packham claimed that the government had not performed a proper review since the loan charge was not included in the review. He further argued that the review failed to examine how the tax avoidance schemes were promoted and operated, and how HMRC set up the loan charge.
In 1999, the Labour Government introduced the IR35 tax law that categorised self-employed freelancers as employers, making them liable to pay National Insurance. Afterwards, many schemes were promoted to the freelancers to enable them to legally avoid paying National Insurance. They’d pay money to offshore companies which would then lend it back to them without expecting the loan to be paid back. The government closed the loophole, and subsequently asked freelancers to pay backdated tax using the loan charge.
Around 50,000 people are estimated by HMRC to have been affected by the loan charge. Treasury Minister James Murray promised a review of the loan charge but claimed that those who did not pay the right tax and national insurance payments should settle with HMRC. He added that the government’s decision was fair to the vast majority of taxpayers who did not use these schemes. He expressed concerns about the charge’s size and whether individuals would be able to pay within a reasonable timeframe. Ray McCann, a former President of the Chartered Institute of Taxation, will conduct the review and report back by early summer
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