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IPSE writes to Chancellor over retrospective loan charge

IPSE has written to the Chancellor, urging the Government to focus its compliance efforts on those who created, enabled and profited from EBTs, and adopt a more reasonable approach to individuals who have been put under tremendous strain from the retrospective loan charge.

Over the last few months, IPSE has been contacted by a number of its members who are concerned about retrospective loan charges. These are people who made use of Employment Benefit Trusts (EBTs), and other similar schemes, typically many years ago, and are now being asked to pay tax (called a charge) on the income. In some cases, the charges are substantial. In most cases, the charges are causing significant distress to the taxpayer and their families. That’s why IPSE has written to the Chancellor asking him to reconsider the government’s approach to this issue.

IPSE’s policy on these schemes has been consistent and clear - we have always advised our members against using them, pointing out that if something seems too good to be true, it usually is. IPSE firmly believes that everyone should pay the right amount of tax. Our opposition to the IR35 changes, for example, is rooted in evidence which demonstrates that many clients have been applying the off-payroll rules incorrectly. In such instances, people are being forced to pay the wrong amount of tax. The use of EBTs is a different matter, but it remains equally true that the right amount of tax has not been paid (in fact no tax has been paid).

That is why IPSE has, until now, refrained from actively lobbying on this issue. However, for many individuals caught up in the current row over retrospective loan charges, the schemes were entered into several years ago, on the advice of the scheme providers, and under the auspices of prominent barristers and tax advisors. IPSE believes that for these individuals there are at the very least extenuating circumstances which must be taken into consideration, and IPSE is calling on the government to do just that.

For the last twenty years those who work outside of traditional employment have been pushed from one tax model to another while successive governments have frantically legislated to close loopholes, increasing the compliance burden in the process. Now the government is reaching back in time and demanding payments on arrangements that many believed, albeit incorrectly, were compliant, putting tremendous strain on hard-working families. 

There is a well-publicised link between IR35 and EBTs. When IR35 was first introduced in 2000, contractors saw it as a direct threat to their freedom to work independently, and that they were being pushed into more traditional employment models. The EBTs, which they were told were fully tax compliant, provided a safe-harbour from what they saw as an unfair and overly complex set of rules, designed to label them as ‘disguised-employees’, a moniker they could not accept. These individuals now feel they have been pushed from the frying pan, only to find themselves in the fire. It is small wonder they feel aggrieved.

Others were encouraged into these schemes by agencies, umbrella organisations and other entities in the unscrupulous supply chains through which they work. Some nurses, for example, were told to enter the schemes, very often believing they had no choice, and of course being assured by ‘professionals’ that the arrangements were entirely legal. Now their lives have been made a misery by lengthy tax investigations and the very real possibility they may lose their home and have to cancel their retirement plans. 

Fast forward to today, and we have heard that history is repeating itself. There is significant anecdotal evidence that nurses caught up in the changes to IR35 in the public sector, brought in in 2017, are again being encouraged into dubious umbrella arrangements. Many of these appear to be off-shore avoidance schemes that will cause significant problems for those individuals further down the line. Until a solution to the IR35 problem is found, we will continue to see these schemes cropping up.

IPSE believes the emphasis of the government’s compliance activity on these schemes should focus on the scheme providers and the barristers who signed them off. Although there are examples of scheme providers being penalised, IPSE believes more should be done. We are not aware of any barristers being retrospectively prosecuted, which seems inconsistent with the retrospective approach taken with taxpayers. By focusing on those who created, enabled and profited from the use of the schemes, a more reasonable approach could be applied to the individuals. Currently, it seems the government has taken the view it should be the other way around.

Until a solution to the IR35 problem is found, we will continue to see more EBT schemes cropping up which will cause significant problems individuals further down the line.

For the last twenty years those who work outside of traditional employment have been pushed from one tax model to another while successive governments have frantically legislated to close loopholes, increasing the compliance burden in the process. Now the government is reaching back in time and demanding payments on arrangements that many believed, albeit incorrectly, were compliant, putting tremendous strain on hard-working families. 

That’s why IPSE is urging the government to reconsider its approach on this issue, to see if a compromise can be reached that would ease the burden on people for whom this is causing such deep anxiety. We also ask government to look to the future, and work with us to build a fair tax system that fits with modern ways of working. Rather than looking back to close the loopholes of the last two decades, the government should be looking ahead to make sure the same mistakes aren’t made all over again.
 

Meet the author

Andy Chamberlain

Deputy Director of Policy and External Affairs