The 2019 Loan Charge has been introduced by HM Revenue and Customs (HMRC) in order to recover unpaid taxes by those who have used a tax loophole since April 6, 1999. HMRC have said that there were instances in which tax was avoided being paid, by using “disguised remuneration” schemes involving loans. They involved workers being paid using tax-free loans from offshore trusts, with a mutual understanding that they did not need to be paid back. As it was paid via a loan, employers did not pay Income Tax and National Insurance contributions.
Iain Duncan Smith has urged Boris Johnson's government to scrap the Loan Charge
Under the Loan Charge, any outstanding loans on April 5 this year have become taxable income.
As such, freelancers who used the legal loophole face a retrospective tax bill on all their income since 1999, if it was paid using the loans.
The government policy paper "Tax avoidance loan schemes and the loan charge", updated in January 2019, states that people who have used these schemes had the choice to either repay the original loan, agree a settlement with HMRC, or pay the loan charge when it comes in to force.
Estimates suggest that there were around 50,000 users of the scheme.
The amount HMRC expects to get back is £3.2 billion before the repayment deadline of January 31.
HM Treasury said in March this year that around 75 per cent of this sum is expected to come from employers rather than individuals.
At the time, Financial Secretary to the Treasury Mel Stride said: “We introduced measures to tackle disguised remuneration schemes, an aggressive and contrived form of tax avoidance which cost the taxpayer hundreds of millions of pounds a year, depriving our vital public services of funding.
Loan Charge 2019: The Loan Charge was announced in The Budget 2016 (Image: GETTY)
“99.8 per cent of people in the UK go nowhere near