IPSE’s stance on the ‘Loan Charge’ scandal

The so-called 'Loan Charge' is one of the most controversial policies of this government. In the last few months, the debate about it has spread from Twitter and trade publications to nationals like the Daily Telegraph and the Financial Times, and even to the House of Commons.


Now, the government has launched an independent review into the Loan Charge, headed by the former head of the National Audit Office, Sir Amyas Morse. From his days at the NAO, Sir Amyas has a reputation for doggedly holding HM Treasury to account and we have no doubt he will do the same here. At IPSE, as the leading representative body for freelancers and the self-employed, we were pleased to be asked to meet with Sir Amyas personally and submit evidence to the review. 

The view we set out was clear: we have never supported the kind of loan-based tax avoidance schemes targeted by the Loan Charge. At the most basic level, if something looks too good to be true, it probably is. The Loan Charge, however, which demands up to 20 years’ tax in one, is a disproportionate and damaging response to these schemes.

When these schemes were being sold, many people were told – often by the providers – that they were completely legal. And yet today, it is not these unscrupulous providers who are being aggressively targeted with the Loan Charge: it is misinformed contractors. Nor is it just comparatively affluent independent contractors who are affected: many less well-paid workers like locum nurses and supply teachers were also pushed into these schemes by their agencies. There is no justification for applying the Loan Charge to them.

Another key reason so many contractors turned to loan schemes is IR35. When IR35 was first introduced in 2000, contractors saw it as an unfair and overly complex set of rules designed to drive them into more traditional – to wrongly label them as ‘disguised employees’. The loan schemes were presented to them as a simple, safe and apparently legal alternative to the menacing complexity of IR35.

Now, the Loan Charge involves HMRC demanding often enormous sums of money from these people. The psychological impact of this has been one of the most emotional and controversial aspects of this debate. In fact, in a House of Commons debate on Wednesday, the financial secretary to the Treasury, Jesse Norman, admitted that HMRC had referred itself to a conduct watchdog three times over the suicides of people facing the Loan Charge.

Instead of this controversial approach, HMRC should be focusing on the unscrupulous individuals and organisations who sold loan-based tax-avoidance schemes. Some effort has admittedly been made on this front, but at IPSE, we believe much more should be done – and that a less aggressive and extreme approach should be taken to the contractors who used the schemes.

There are some comparisons to be drawn here with the Payment Protection Insurance (PPI) scandal. In that instance, it was the providers who benefited most and were held to account – we believe the same approach should be taken here.

As we told Sir Amyas and the review, focusing HMRC’s energy on the people who sold loan schemes would allow for a more lenient and much less damaging approach to the people who used them. We believe HMRC should also limit the number of people the Loan Charge is applied to. The normal time limit for tax investigations is four years – or six years in serious cases. We believe HMRC should apply that here, and only investigate people who used loan schemes in the last either four or six years – and take a more lenient approach to them.

Meet the author

Andy Chamberlain

Director of Policy and External Affairs