IPSE respond to Bob Neill MP's comments on the Loan Charge
Andy Chamberlain, Deputy Director of Policy at the Association for Independent Professionals and the Self Employed (IPSE), responds to Bob Neill MP’s article on the Loan Charge.
Bob Neill raises some important points. Firstly, the Loan Charge has a dramatic, and all-to-frequently – traumatic – impact on the families affected by it. Secondly, there is an undeniable whiff of unfairness about the way the new rules allow HMRC to delve into closed tax years. And thirdly, the government’s strategy of hounding individuals taxpayers while doing little to root-out and prosecute the scheme providers suggests a priority shift is needed. But what Mr Neill didn’t say was that the Loan Charge is really is just another symptom of the UK’s badly broken tax system.
It is often overlooked that these loan arrangements, which have now landed individuals (and indeed the government) in so much hot water, stemmed from the arrival of IR35 legislation 20 years ago. Such was the confusion surrounding IR35 – complex rules that determine when a business can, and cannot, be taxed as a business – many baffled contractors ran into the arms of snake oil salesmen who assured them the loan schemes they were pedalling were entirely legal and legitimate.
It was the government’s own policy which created the conditions for the tax avoidance schemes to thrive and it appears that lessons have not been learnt. The government now intends to charge IR35, to make hiring organisations responsible to determining IR35 status. Through a mixture of fear, confusion and HMRC coercion, we expect many organisations to put almost everyone in IR35, regardless of their actual status. This will yet again leave the door wide open to nefarious entities. They will be pedalling loan arrangements, but probably under a different name.
Many contractors are savvy enough by now to know not to trust the schemes. If something sounds too good to be true, it usually is. But there will be some for whom all this tax stuff is hopelessly confusing and they will be hoodwinked into believing they are doing everything by the book and are fully tax compliant. History is repeating itself. In a bid to clamp down on perceived non-compliance with IR35, the government is shepherding contractors into the arms of the schemers.
Both the Loan Charge and the proposed IR35 changes require an urgent rethink. This whole area of the tax system, and HMRC’s administration of it, must be independently assessed and calmly reconsidered. Yes, of course everyone should pay the right amount of tax, but we need clear and fair rules to determine what the right of amount of tax is, and we need a government which places more emphasis on going after those who truly profit from tax avoidance, rather than bewildered individuals who are the victims of our impenetrable tax system.