Introduction of the 2019 Loan Charge

Over the last few years the Government has introduced several measures to tackle ‘disguised remuneration’ (DR) schemes. Initially legislation to counter this form of tax avoidance was introduced in 2011.  Subsequently in the 2016 Budget the Government confirmed that since then “new schemes have emerged which attempt to sidestep this legislation” often involving “individuals being paid in loans through structures such as offshore Employee Benefit Trusts”, and that it would introduce legislation to counter their use, including “a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5 April 2019.” (Budget 2016, HC901, March 2016 p60).

Statutory provision was included in the Finance (No.2) Act 2017 (specifically ss34-5 & Schedules 11-12) with supplementary provisions in the Finance Act 2018 (specifically ss11-12 & Schedules 1-2). Taxpayers who are potentially liable to pay the Loan Charge may settle their tax affairs with HMRC, before the Charge comes into effect from 6 April 2019. Full details are set out in, HMRC, Disguised remuneration: settling your tax affairs, 18 July 2018 & Disguised remuneration: detailed settlement terms, 7 November 2017.

Many Members have received representation about this from constituents, and, to date, 145 Members have signed an Early Day Motion, tabled by Stephen Lloyd MP in May 2018, criticising this measure as unfairly retrospective: EDM 1239 of 2017/18, 8 May 2018. However, this legislation attracted cross-party support when it was scrutinised in the House, and to date there is no indication that Ministers are minded to either scrap the change or substantively amend the way it applies.

At the report stage of the Finance Bill on 8 January 2019, the Government agreed to a new clause, tabled by Sir Edward Davey. This required the Treasury to published a review of provisions in the Bill, that deal with the time limits HMRC have to re-open past year’s tax queries, in cases involving non-deliberate offshore non-compliance, and compare them with other time limits placed on HMRC’s recovery of lost tax, including the loan charge.  This review was published on 29 March, and is available on the Treasury’s site.

On 4 April the House debated a motion relating to the introduction of the Loan Charge (HC Deb cc1287-1326). Ross Thomson made an application to the Backbench Business Committee for this debate on 26 March, along with Ruth Cadbury, Adrian Bailey and Tommy Sheppard. The debate was suspended due to a water leak in the Chamber, and was resumed on 11 April (HC Deb cc552-569). This briefing pack was prepared in advance of this debate.