What is the Loan Charge?

July 15th, 2019

Away from the headlines, there is a lot of anger brewing about something called the Loan Charge. Campaigners point to unfairness and the impossible strain people have been put under. Meanwhile, the Government say they’re just collecting money owed. Here’s what you need to know

For years many people who worked freelance or were self-employed, as well as some with regular employment, were payed through something called an 'employee benefit trust'. The trust would then 'loan' the payment to the individual.  These 'loans' were never designed to be paid back.    At the time this was seen as a perfectly legal way to reduce your Income Tax and National Insurance Contributions. On 5th April 2019, the government changed the law. They said that because the 'loan' was going to be paid back, it should be taxed as normal income.  Not only that, but these changes should be backdated.  They want tax from any loans since 05th April 1999. Anecdotally, some have received bills for well over £100,000. Moreover, UK citizens are required to keep financial records for 7 years, not 20.
For years many people who worked freelance or were self-employed, as well as some with regular employment, were payed through something called an 'employee benefit trust'. The trust would then 'loan' the payment to the individual. These 'loans' were never designed to be paid back. At the time this was seen as a perfectly legal way to reduce your Income Tax and National Insurance Contributions. On 5th April 2019, the government changed the law. They said that because the 'loan' was going to be paid back, it should be taxed as normal income. Not only that, but these changes should be backdated. They want tax from any loans since 05th April 1999. Anecdotally, some have received bills for well over £100,000. Moreover, UK citizens are required to keep financial records for 7 years, not 20. "There are some people who may have been very adversely affected in mental health terms, and we must protect them at all turns... there is a much wider and larger number of people who are simply trying to avoid paying tax due." - Jesse Norman, Conservative MP "The reality is that HMRC are simply going after individuals & demanding unpayable sums with no appeal leading to bankruptcies, breakdowns & suicides." Loan Charge APPG

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