Disguised remuneration loan charge: fairness and proportionality should underlie the Finance Bill provisions

The government should ensure that fairness and proportionality govern the disguised remuneration loan charge provisions in Finance Bill 2017-19.


ICAEW Tax Faculty has suggested some amendments to the legislation in our submission (ICAEW REP 108/17) to the Finance Bill Public Bill Committee, and made recommendations on how it should operate. The legislation is in clauses 34-35 and Schedules 11-12 of the Bill.


The loan charge provisions are a new charge to tax on employees and traders who were paid via disguised remuneration (DR) loan arrangements. In broad terms, tax will be charged on 5 April 2019 at marginal rates on the value of all disguised remuneration scheme loans received by employees and traders since 6 April 1999 which remain unpaid on 5 April 2019.


We support the underlying policy of countering tax avoidance, but are concerned about the potential hardship that this measure will cause in certain cases, particularly at the lower end, including some people who were misled into using these schemes.


Introducing a charge on transactions entered into up to 20 years ago which potentially could result in taxpayers becoming insolvent, as envisaged in the government’s December 2016 policy papers for employees and traders, is likely to mean that little or no tax will be collected from these individuals and could actually reduce the tax yield. Bankruptcies also have social impacts that draw on social security and NHS resources and may prevent those affected from being able to find work in future.


Some people using DR schemes knew exactly what they were doing and were deliberately avoiding tax. They deserve little or no sympathy. In fact HMRC and the former Inland Revenue should have acted far sooner against these schemes. However, not all taxpayers are in this position: many were misled about the arrangements and would not have appreciated what they were doing. In their case, while their position needs to be regularised, we think they should not be so heavily penalised.


HMRC is likely to collect more tax if it adopts, in appropriate cases, a sympathetic and flexible approach to resolving taxpayers’ affairs, and allows time-to-pay arrangements that are substantially longer than normal.


We consider that it would be equitable if the tax collected under the loan charge broadly reflects the tax that would have been paid had the loans been treated as earnings at the time. This could be achieved by capping the tax charge at the amount of tax that would have been due had the loan constituted earnings for the tax year in which it was made; or, as a simple alternative, by giving top slicing relief for the tax charge on the loans over the number of years the loans were made. We also recognise that, on the basis that the loans were earnings, there needs to be recompense for the Exchequer which has been out of pocket.