Government slammed for ‘sluggish’ refunds to only a small number of contractors affected by loan charge scandal

Although HMRC have refunded millions of pounds to taxpayers who paid its controversial loan charge, only a fraction of those who applied for it have received any money.

A freedom of information request submitted by the Telegraph revealed that £3.6 million has been refunded by the tax watchdog to just 50 individuals who paid the loan charge – an average of £72,000 each.

HMRC received almost 1,850 applications for a refund by April 2021, but, according to the Telegraph, because of the complexity involved, it has taken the government much longer than anticipated to process the repayments.

Loan charge went ‘too far’

Many contractors are due a refund after a review of the loan charge, commissioned in 2019 by the then Chancellor Sajid Javid, found that the policy had gone “too far.”

The committee behind the review reported that the loan charge failed to consider the serious distress paying this tax would cause the 50,000 affected.

The loan charge was a tax on disguised remuneration schemes which paid workers’ salaries in the form of non-repayable loans. 

These loans, which were advertised as compliant by promoters, meant these workers did not pay Income Tax or National Insurance contributions – they took home 100 per cent of their wages, minus any fees paid to the scheme providers.

Refund for all eligible estimated to hit £65 million

The review found that many of the people impacted by the loan charge worked on temporary contracts, whether as nurses or IT consultants, who were pressured into these arrangements.

As a result, the government issued new rules that narrowed the scope through which HMRC could demand more tax.

Under this, anyone who had entered into these so-called disguised remuneration schemes before December 2010 was exempt from paying the charge. This meant some people were due a refund.

Noel Mooney, from accountancy firm RSM, estimated the potential figure for refunds to be around £65 million.

Government handling of injustice ‘deeply troubling’

Responding to the figures, Andy Chamberlain, Director of Policy at self-employment trade body, IPSE, said: “After the damaging and unjust mess of the loan charge scandal, affected contractors should not have to be applying for a refund at all: they should have been automatically repaid.

“It is therefore doubly disappointing that the government has been so sluggish to refund just a small proportion of those affected.

“Since the government ultimately accepted the recommendations of the Sir Amyas Morse Review in 2019, it should work to ensure all refund applications from contractors who were negatively affected by the loan charge scandal are processed as quickly as possible.  

“IPSE is still deeply troubled by the approach (the) government took to the loan charge: instead of targeting the individuals who entered into these schemes – in many cases unwittingly – it should have gone after the true villains, the promoters and providers of disguised remuneration schemes.”