Ahead of a general election, party positions itself to win support from self-employed
Labour’s Shadow Chancellor of the Exchequer, Rachel Reeves, has suggested her party would review the Loan Charge if it wins a general election, offering some hope to the tens of thousands of workers affected by the scandal.
Speaking on LBC radio last week (Monday 29th January), and as reported by the Telegraph, Reeves said that “the way people are being treated” by HMRC over the Loan Charge is “not acceptable”.
“We are not talking about the biggest earners here”, Reeves said. “We are talking about ordinary people on ordinary wages” who were “encouraged by their accountants to participate in these schemes”.
“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 the real scandal”, she added.
Alongside the suggestion that her party would open a new, independent inquiry into the Loan Charge, the Telegraph reports that Labour is “pressing the Government to review” existing Loan Charge cases.
As part of the review, Labour wants to see evidence that HMRC acts in a “more proportionate” way when handling new cases, and does not “pursue people who could not afford to pay” an inflated tax bill.
Loan Charge back in limelight following debate
The Loan Charge, controversial since its introduction, has left thousands of workers with unpayable tax bills for alleged tax avoidance via disguised remuneration schemes.
Such arrangements were widely marketed as tax-compliant by accounting professionals and saw contractors paid via loans rather than salaries, avoiding income tax and national insurance payments.
However, HMRC now aggressively targets these schemes while also attempting to recover historic taxes via the Loan Charge, treating all earnings as income in one tax year. Many taxpayers have been issued unpayable tax bills as a result.
The policy is under scrutiny once again following a Parliamentary debate held on Thursday 18th January. The debate allowed MPs to raise concerns over HMRC’s conduct.
Several Labour MPs attended the debate – including John McDonnell, who previously served as Shadow Chancellor under the party’s previous leader, Jeremy Corbyn. McDonnell noted that his own constituents had had “incredibly distressing” interactions with HMRC as a result of the Loan Charge.
He had also called for an “immediate”, “time-limited” and “truly independent” review into the scandal, to cut through the “culture of secrecy and protectionism” at HMRC.
Labour aspires to be “pro-business part”
Alongside the calls for Loan Charge justice from senior figures in the party in recent weeks, Labour began its general election campaign with its second Annual Business Conference, also held last week (Thursday 1st February).
With the government’s Spring Budget taking place next month, the event was an opportunity for Labour to articulate its plans to reform the UK’s complex tax system.
As such, at the conference, Rachel Reeves promised that Labour would both “campaign as a pro-business party” and “govern as a pro-business party”.
One of the headline promises to businesses was that the main rate of Corporation Tax would be frozen for five years under a Labour government. Reeves also hinted that Labour would consider re-evaluating the freeze and lowering the headline rate, “should our competitiveness come under threat”.
Despite this, however, there was little additional insight into other potential tax cuts, either those affecting businesses, the wider self-employed workforce or taxpayers in general – leaving question marks over Labour’s long-term plans for tax reforms.
What is it with the whole challenge to the Loan Charge?!
Intelligent, self-employed people, paying themselves in loans that were never to be paid in full and were used as a vehicle to avoid tax are nothing but a cynical tax dodge. Contractors have been blighted by the exceptionally unfair IR35 rules which are in no small part due to scandals such as this.
The quotation that Labour wants HMRC to “not pursue people who could not afford to pay an inflated tax bill” is frankly ridiculous. If you’ve avoided paying tax and are caught – you pay the tax! If the messages is ‘If I avoid taxes and blow it all on fantastic holidays and flashy cars so that I have nothing left when the tax man comes calling then I won’t have to pay’ we’re all in serious trouble.
Why is nobody talking about the unfairness of IR35. The fact that expenses are not allowed, that contractors are being forced to employ rent-seeking umbrella companies who do nothing more than process the invoice and payment which could easily be handled by the contractor. How about the fact that from the IR35 tax, the contractor has to pay the employers Income tax too, and also with most umbrella companies the apprenticeship levy due to the amount of receipts the umbrella company is brining in rather than the fact the contractor is a single one-man0band employee.
Of course, as a contractor earning PAYE, the likelihood is that for their troubles, they’ll bring in perhaps over £100k and see their tax free allowance eroded, plus potentially also be liable for the 45% higher tax rate.
All of these persistent legalised penalties to force the contract market out of viable existence, and yet what is the media and political soundbites focusing on? It’s how unfair the loan charge is for giving free money to unscrupulous contractors and then asking for the tax receipts, whilst at the same time quite happily double, triple, and quadruple taxing contractors under IR35 and standing firm that ‘it’s fair dues’