Morse Loan Charge Review

the government should come forward urgently with a clear timetable for its response to this report and for any necessary legislation to give effect to these recommendations to provide taxpayers with certainty ahead of the 31st January 2020 deadline for assessment to the Loan Charge. This should include appropriate guidance from HMRC to those likely to be affected, and a means of ensuring that taxpayers have time to take appropriate advice before submitting their Self Assessment return or – for those who remain in the settlement process – whether to settle rather than pay the Loan Charge.

individuals with income of less than £30,000 in 2017-18 should additionally not have the Loan Charge hanging over their head for any longer than 10 years, and any amount left outstanding after 10 years of paying the Loan Charge should be written off to genuinely draw a line under any outstanding balance. This will allow people to move on after paying what they can afford

HMRC should extend to individuals with income from £30,000 up to £50,000 in 2017-18 the same payment terms that were offered to such individuals who settled their tax affairs rather than pay the Loan Charge. Such individuals should be automatically able to pay the Loan Charge over up to five years without having to provide HMRC with further details of their asset ownership

fund an external body to provide independent advice to lower income taxpayers who are discussing payment arrangements and debt collection with HMRC, including on potential suitability of an individual voluntary arrangement (IVA) or other arrangements

update taxpayers at least annually about the status of open tax enquiries and, where they do not do so, have this non-communication taken into account by the First-tier Tribunal (FTT) if a taxpayer applies to have an open enquiry closed

report to Parliament on its implementation of the Loan Charge before the end of 2020, drawing on input from their recently established Customer Experience Committee, representative bodies, charities focused on lower income individuals, and other professionals. This report should also address common themes arising from other recent reports, including from the House of Lords Economic Affairs Committee (EAC) and the Adjudicator

review its Charter to set higher expectations of performance during interactions with members of the public, and to ensure that staff are trained to meet these expectations

given the one-off nature of the Loan Charge, government should explain how it will tackle loan scheme usage in the future

the government must improve the market in tax advice and tackle the people who continue to promote the use of loan schemes, including by clarifying how taxpayers can challenge promoters and advisers that may be misselling loan schemes. There should be a new strategy published within 6 months, addressing how the government will establish a more effective system of oversight, which may include formal regulation, for tax advisers

the strategy for communicating what is considered tax avoidance must be improved to reflect the 'mass market' nature of loan schemes. In particular, HMRC should continue enhancing its usage of Pay As You Earn (PAYE) Real Time Information to communicate with taxpayers who they suspect may be engaging in tax avoidance, and proactively put taxpayers directly on notice of its view

that future published government impact notes of tax changes should take proper account of the direct impact on the affected population. These assessments should also explicitly include interactions between different taxes

the Review recommends that HMRC run a settlement opportunity in 2020, to allow any taxpayers outside the scope of the Loan Charge but with a liability arising from loan schemes to settle their tax affairs.

that, as campaigns on taxpayer issues such as the Loan Charge are likely to be a feature of debates in tax policy in future, HMRC should learn from the Loan Charge to better respond to such campaigns and communicate more effectively

the Loan Charge should not apply to loans entered into before 9th December 2010

Unprotected Years arising from loans entered into on or after 9th December 2010, where the relevant taxpayer made reasonable disclosure of their scheme usage to HMRC and HMRC did not open an investigation, should be out of scope of the Loan Charge (subject to recommendation 5 below). Other Unprotected Years should remain in scope of the Loan Charge. This will ensure that taxpayers do not benefit from failing to disclose their tax affairs to HMRC. The approach to defining "reasonable disclosure" should build upon HMRC's ordinary compliance approach in considering the extent to which a Self Assessment return is sufficiently clear about the usage of a loan scheme

any Unprotected Years arising from loan schemes entered into during the 2016-17, 2017-18 and 2018-19 tax years should all be included in the scope of the Loan Charge, to ensure that taxpayers who entered into loan schemes after the Loan Charge was announced do not unreasonably benefit from HMRC having ceased protecting years following the announcement

HMRC should refund the Voluntary Restitution elements of settlements made since 2016 that were paid to settle Unprotected Years when the relevant loans were entered into: a) prior to 9th December 2010; or b) between 9th December 2010 and the start of the 2016-17 tax year, where the scheme user made reasonable disclosure of their scheme usage in their tax return

taxpayers should be entitled to opt to spread their outstanding loan balances over three years, to mitigate the impact of taxpayers paying tax at a higher rate than they ordinarily would. This reduces the effect of stacking their outstanding loan balances into a single year, which artificially created an increased exposure to a higher rate of income tax

the extent to which the Loan Charge looks back to activity in earlier tax years dating back to 1999-2000, and the manner in which ongoing interest is charged on payment arrangements has given rise to concerns over how policy on interest is applied within the tax system. The government should review future policy on interest rates within the tax system and report the results to Parliament by 31st July 2020

all individuals subject to the Loan Charge should only be asked to pay up to half their disposable income each year and a reasonable proportion of their liquid assets. No one should have to sell their primary residence or use their existing pension pot to pay the Loan Charge