The broken promise in government's Loan Charge review

By Joshua Toovey Senior Research & Policy Officer at IPSE - The Self-Employment Association

To most, the then government in waiting had seemingly understood the many concerns surrounding the Loan Charge when they committed to review the controversial policy back in October.

But what we hadn’t expected was for this review to overlook the human cost.

Going back on a promise

Let’s not forget that families up and down the country have been left broken by the implementation of this policy. And the actions and demands of HMRC placed on these individuals continue to remain largely unchecked or scrutinised.

Instead, the scope of this fresh review seeks only to find ways to resolve instances where money is still owed to the taxman.

The Loan Charge itself is not being reviewed. Neither the way that HMRC implemented this policy, the wording used in the determination notices that were sent out or even the very impact it has had on individuals’ mental health.

Quite rightly, many campaigners have called out this government for going back on their promise. This was a pledge that was made during the election campaign, no doubt used in an attempt to curry favour some votes.

A proper review must be open to all possible conclusions, including the scrapping of the policy altogether. Unfortunately, the Terms of Reference for this review rule out any such substantive change and focus on how those impacted can be ‘encouraged to reach resolution with HMRC’. In other words, ‘how can we more efficiently collect the tax owed as a result of this policy.’

What is the Loan Charge?

For those of you unfamiliar with the Loan Charge, it was introduced in 2019 as a means to recover tax revenue from what HMRC considered disguised remuneration schemes.

It resulted in thousands of contractors ultimately facing life-changing tax demands and causing great stress and anxieties to those caught up in this.

The Morse review

It wasn’t that long ago that we had the previous review into the Loan Charge, led by Sir Amyas Morse.

Back in 2019, we at IPSE met with Morse and fed back our concerns about the rigidity of the policy and how it was implemented. In particular, we wanted to see HMRC go after the promoters of these tax avoidance schemes rather than the contractors themselves.

The schemes were marketed as being tax compliant. Yet it remains the contractors themselves that are on the hook for the tax bills.

It is these advisors, agents or promoters of these tax avoidance schemes that a review really should be looking at.

For too long, they have simply got away with it.

Taking lessons from the IR35 review

Unfortunately, we’ve been here before with the IR35 review. The Conservatives pledged to review the impact of the policy prior to taking office in 2019.

The subsequent review also failed to consider IR35 as a policy, instead focusing on areas where non-compliance with the rules could be further targeted by HMRC.

It's clearly easy for political parties to commit to fundamental reviews whilst in opposition. Especially if they believe it will bring in some votes. For parties on all sides to row back on such promises, many will understandably feel repeatedly betrayed by our politicians when it comes to these issues.

Promoters off the hook, again...

HMRC themselves estimate that 39 per cent of all umbrella company workers that were engaged at some point between 2022 to 2023 were working for umbrella companies that failed to comply with their tax obligations.

Most of these workers will be completely unaware that their umbrella provider is not correctly meeting their tax obligations. Most of these workers do not even want to be working via these umbrella models, forced to do so due to the implementation of the IR35 reforms.

Currently, the workers themselves will be on the hook for the tax liability should the directors of the umbrella company not be able to pay. And realistically, these directors will be on a beach in the Caribbean by now.

It’s clear that the current system of prevention and enforcement isn’t working. Simply listing the umbrella company providers that are engaged in disguised renumeration schemes on the gov.uk website for 12 months is not enough.

We urgently need a single enforcement body to be established ahead of the government reforms to the market in 2026. They must have the remit to proactively investigate and prosecute the promoters of tax avoidance schemes and the umbrella company market is an obvious place to start.