Stephen Lloyd MP: Government must revisit the 2019 Loan Charge to avoid bankrupting thousands of innocent contractors

Posted On: 
18th May 2018

Thousands of nurses, doctors, teachers, public sector contractors and freelancers could be made bankrupt because of the retrospective tax measures contained in the Government’s 2019 Loan Charge, says Lib Dem Work and Pensions Spokesperson Stephen Lloyd MP. 

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Thousands of nurses, doctors, teachers, public sector contractors and freelancers could be made bankrupt because of the retrospective tax measures contained in the Government’s 2019 Loan Charge. They have been labelled both unfair and draconian.

These workers find themselves in this position because back in 1999 the Government, in an attempt to prevent employers avoiding National Insurance contributions by classing their employees as contractors, introduced a piece of legislation called IR35. IR35 sought to class many freelancers as employees.

IPSE respond to Stephen Lloyd MP on IR35

As is often the way with legislation, IR35 contained unintended loopholes, and it gave birth to a whole new array of employment umbrella arrangements – usually paying people through loans – which promised employees safety from IR35. These all claimed to be approved by the UK Tax Authorities, the Queen’s Counsel and several top accountancy firms. Many well-intentioned freelancers received advice from tax professionals who were all too often prepared to send their clients down the new umbrella route. 

The Government are now saying that these arrangements were invalid, and are ‘not what Parliament intended’. This is despite years and years – almost 20 years -  of tax returns being filed, dues paid and HMRC not flagging that anything illegal was taking place. Instead, HMRC has suddenly opted for a ‘quick-fix’ by coming up with a law which will enable them to place a charge on all ‘loans’ going back as far as 1999.

Hard-working contractors are now being hounded by HMRC with Advanced Payment Notices (APNs) without any right of independent appeal. People who acted in good faith are being punished for the Government’s own imprecise legislation, which enabled agencies and tax advisers to take advantage of loopholes and flourish off the backs of honest contractors. I have been contacted by many people from across the country affected by this change of Government policy, frightened that they are going to lose their homes and livelihoods. Many face six-figure tax bills and charges on outstanding ‘loans’.

Going after the freelancers, rather than those who advised them, is in my view wrong of HMRC. Some firms still offer employees similar arrangements today, yet the Government and HMRC are doing nothing to stop them. Recently, the Supreme Court ruled that Rangers Football Club – rather than its staff – must foot the bill for any tax shortfall that occurred due to these payment arrangements. If that is the opinion of the highest court in the land, it suggests the Government has no legal right pursuing workers for the unpaid tax arising from these arrangements.

Only in wholly exceptional circumstances can tax law changes be applied retrospectively. Not my words, but those of the Treasury in March 2011 and I fail to see how an arrangement that was used for 20 years by tens of thousands of people is in any way ‘exceptional.’

Through my Early Day Motion (EDM 1239) which has cross-party support, I am calling on the Government to revise its legislation to avoid unnecessary harm to thousands of lives. The Loan Charge should only apply to disguised remuneration loans received after the Finance Act 2017 gained Royal Assent. This is only fair and reasonable, principles that form the basis of civilised law.

 

Stephen Lloyd is Liberal Democrat Work and Pensions spokesperson and the MP for Eastbourne.

 

IPSE have responded to Stephen Lloyd MP. Andy Chamberlain, Deputy Director of Policy at IPSE said "This is just one of the many problems which have plagued the disastrous IR35 laws ever since they were introduced in 1999... IR35 is so complex, it seems not even HMRC can accurately determine who it apples to." Read IPSE's full response here.