The loan charge is legislation passed by Parliament in the Finance Act of 2017 and it seeks to claim tax retrospectively on all payroll remuneration through loan schemes made since 1999. The Morse review of the loan charge in 2019 reduced the reach of the retrospective element of the legislation from 20 years, as originally planned, to 10 years. Loan remuneration arrangements were widely used, especially by contract workers, and were and still are legal. The arrangements are sold to workers often by a recommendation by an accountant, internet advertising, direct marketing or recommendations from other workers.
Often the arrangements came with the assurance that they had been approved by KCs who were legal tax experts and were not challenged by HMRC at the time. Most users were unaware that HMRC did not approve of such schemes until they heard about the loan charge. Those caught by the loan charge will face a bill for up to 10 years’ retrospective tax in one go which for most people will be totally unaffordable, not to mention the devastating personal impact.
The users of the arrangements believe that the retrospective aspect of the legislation is totally wrong; they were sold the arrangements as complying with the tax rules at the time.
The loan charge review: Morse 2019
The Morse Review was conducted in 2019 by Sir Amyas Morse. It was meant to be independent; however, serious questions were raised about this independence. The cross-party Loan Charge and Tax Payer Fairness APPG published a report into the review in March 2020 where they stated that the Terms of Reference of the Morse Review were limited and involved far too much input from HMRC and the Treasury to be considered independent.
Key points of concerns were that HMRC staff were on the Review body and could not be independent, that the Director of Personal Taxation had the ability to influence the Review and there was a strong suggestion that HMRC and the Treasury would see early drafts.
Labour’s promise of a new review
Rachel Reeves MP, while still in opposition, appeared on the Iain Dale LBC programme on 29 January 2024. When asked about the loan schemes, she said: “… HMRC seem to be coming after the people who were mis-sold these products rather than the people who were mis-selling them and that is a real scandal.”
Iain Dale continued: Would Labour commit to an independent review, where HMRC would not be involved, if the loan charge was not resolved by the election? She replied: “Yeah, we will do that review but I hope that the Government will crack on so people like Doug (the caller) and many others do not have to wait that long.” Reeves also confirmed that should they win the election, the Rt Hon James Murray would be the minister responsible for tax and therefore also for the review.
Murray’s involvement would give encouragement to the loan charge victims. He had been calling for a new approach to resolve the loan charge since at least November 2021 and has also previously stated similar sentiments in several posts on X: “Far too many people who are victims of mis-selling are now facing financial ruin because of the loan charge. Their ordeal is the clearest possible proof the Government needs to think again. Today I pressed Ministers to agree to Labour’s call for a new, truly independent review.”
The election came and went in July 2024 with Labour winning a landslide victory. Then, as promised, Labour announced a new independent loan charge review in the November 2024 budget.
What was promised vs. what was delivered
On 23 January 2025, a new independent loan charge review was announced. This would obviously be cause for celebration for the loan charge victims who have had this retrospective legislation hanging over their heads for years. At least, you would have thought so. However, when the Terms of Reference (ToR) were published, the victims were disappointed, if not shocked. The scope of the ToR was to see what barriers were preventing payment in full to HMRC from those subject to the loan charge.
No mention of the people who sold these schemes, who both Reeves, now Chancellor of the Exchequer, and Murray, Minister for HMRC, previously thought were the villains in this story. Instead, now that they are in government, quite probably helped by votes from loan charge victims buoyed by the promise of a fair review, they have turned on the very victims of this scandal.
Not only were victims dismayed by the narrow scope of review, which will only mean HMRC will continue to pursue for the monies they believe are owed, they were shocked by the appointment of Ray McCann. He had previously held senior roles at HMRC and oversaw the introduction of the UK’s Declaration of Tax Avoidance Schemes (DOTAS) rules. Some of the loan schemes used by people now subject to the loan charge fell under the DOTAS rules. With McCann’s previous links to HMRC, some may believe that his appointment to head up the review will bring into question its independence.
New loan charge review has its hand tied: the nightmare continues
However, regardless of how McCann decides to approach the review, his hands are somewhat tied by the scope being limited to looking at how HMRC can make the victims pay. The scope also limits the review to looking at disguised remuneration schemes used only between December 2010 and April 2019 (the range of the loan charge legislation). However, many people who are victims of the loan charge used schemes before this date and have open tax enquiries prior to 2010. This will mean that the review brings no closure to the nightmare for them and HMRC will be able to continue to pursue for monies pre-2010.
There is one small crumb of hope in the appointment of McCann and that is he added his name to the proposal created by tax and accounting sector professionals in December 2021 to bring the loan charge to a fair and just closure. However, the ToR for the review seems to throttle any chance of this proposal being followed.
When the review concludes in summer 2025 it will have not covered any of the issues that drove people to use these schemes in such large numbers. How could users have been given assurances by promoters that the schemes were approved at the highest levels by tax experts and KCs? Why are there loopholes in the tax code that allowed schemes to be sold in such large numbers? Was the heavy-handed approach with the retrospective loan charge the correct course of action? (There have been 10 suicides due to this legislation.) What will be done to stop promoters of tax avoidance schemes in the future?
Let down by the government
Steve Packham, from the Loan Charge Action Group, has said: “What Government has announced today is not review at all, as it actually astonishingly excludes reviewing Loan Charge.” (sic)
The Rt Hon Greg Smith, Chair of the Loan Charge and Tax Payer Fairness APPG, appeared on Dale’s LBC show on the evening that the review was announced and both condemned the review as a “sham”.
Once again, we have seen politicians all too quickly shed their thinly veiled cloak of support when they are privileged enough to move from the opposition benches to those of the sitting government, aided by the support of those people relying on them to do the right thing and deliver on previous promises.
We can only hope that Murray and Reeves remember what they have previously said regarding the loan charge and rethink the narrow terms of reference that will bind the hands and blinker the eyes of whoever runs the review.
