The UK government is taking steps to address the fallout from a contentious tax policy that has put many IT contractors in a tough spot since it was introduced in April 2019. In the Autumn Budget 2024, the government announced an independent review of the Loan Charge, aiming to bring some closure for those affected while ensuring fairness for all taxpayers.
This situation is troubling. The Loan Charge has driven some contractors to financial ruin and has been linked to at least ten suicides. The policy was designed to recover taxes from contractors who used loan-based payment schemes between December 2010 and April 2019. These schemes allowed contractors to receive part of their payments as non-taxable loans, reducing their overall tax burden.
HMRC, as the tax collection agency, has every reason to pursue this—after all, they believe these arrangements unfairly minimize tax contributions. Critics argue that many who entered these schemes were misled, often told they were compliant with HMRC guidelines by trusted advisers. Some contractors even claim they felt pressured to accept loan payments by companies they worked for.
A group of about 200 cross-party MPs is urging HMRC to shift its focus away from individual contractors and towards the employers and scheme promoters who recommended these arrangements. The challenge is that many of those individuals and firms have vanished from the scene, making it harder to hold them accountable.
Since the Loan Charge took effect, discussions about legal challenges have surfaced. Plus, there are calls for the government to cancel some of the tax debts owed by affected contractors. The government has made it clear that while the review is underway, the Loan Charge stays in place and contractors must stick to their repayment agreements.
This independent review isn’t the first; the first one happened back in December 2019, after many delays. Dave Chaplin, CEO of ContractorCalculator, welcomed the new review, highlighting the severe impact of this policy. He expressed concern over HMRC’s accountability in enforcing a tax that has caused significant distress, even leading some to tragic outcomes.
The initial review, overseen by ex-NAO chief Amyas Morse, examined whether the Loan Charge was the right strategy for addressing disguised remuneration. In its wake, the government made some adjustments, like shortening the coverage period from 20 years to 9 for some individuals and modifying repayment terms to ease financial burdens.
However, many in the contracting community felt these changes were insufficient. Just months after the first review, a cross-party group of MPs raised issues of possible outside influence on the review process, a claim denied by the Treasury.
Groups like the Loan Charge Action Group have long argued for the removal of retrospective aspects of the policy. Their spokesperson, Steve Packham, emphasized the importance of this second independent review being truly thorough and looking beyond just the Loan Charge itself.
Packham also highlighted that the review should examine how the IR35 off-payroll rules contributed to the rise of loan-based payment schemes, as well as HMRC’s treatment of affected contractors. He thanked Chancellor Rachel Reeves and MP James Murray for their commitment to the new review and urged that it be independent and comprehensive.
There’s also a push for a pause in HMRC’s enforcement activities until the review gets underway, but at the time of writing, no word has come from HM Treasury on whether that will happen.
While specifics about the review remain unclear, it’s evident that tens of thousands of contractors are closely watching, hopeful for a resolution to this issue that has affected their lives so deeply.
