The UK Treasury is reconsidering key tax avoidance measures that have been criticised as overly aggressive by some MPs in an upcoming Finance Bill.
The loan charge, due to come into effect in April, has attracted considerable controversy as the regulations give HMRC powers to impose a second taxing point for historical schemes that were considered legal 20 years ago.
This means the charge will affect anyone who used a loan scheme, typically via an umbrella company, and who has not paid the intended amount of tax over the last 20 years. HMRC has indicated it expects to protect around £3.2bn in tax by tackling such avoidance schemes.
"This review is about an important tax principle. The Government are in effect in breach of the rule of law with the retrospective nature of their loan charge"
MPs from the opposition argued that the move would unfairly punish tens of thousands of contractors and agency workers who had used disguised remuneration schemes.
The "loan charge" was due to affect employees who benefitted from such schemes, dubbed "disguised remuneration". By combatting such schemes, HMRC aims to protect £3.2bn that it said could be reinvested in public services.
However, a report from the House of Lords criticised HMRC for drawing up measures that unfairly hit contractors and freelancers rather than the firms which drew up the schemes.
Liberal Democrat MP Ed Davey said: "This review is about an important tax principle. The Government are in effect in breach of the rule of law with the retrospective nature of their loan charge.
"And the unfairness of that has brought misery to thousands of people. While Ministers have listened, the review that's now been established must respond to the concerns of MPs across the House. Treasury Ministers have a duty to respond seriously and substantively."
Davey tabled an amendment to the Finance Bill, which enables a review of the loan charge and submission of a report by 30 March 2019.
The amendment followed a highly critical report published by a House of Lords committee that accused HMRC of unfairly singling out individuals, rather than their employers, who in many cases had forced their employees to use the schemes, which left some facing serious risk of bankruptcy.