The Treasury has published terms of reference for the government’s new review into the loan charge, which will conclude in the summer.
The terms of reference follow last week’s announcement that Ray McCann, former president of the Chartered Institute of Taxation, will lead the review. He will be supported by a team of officials from outside the Treasury and HM Revenue and Customs, who have not previously worked on this policy area.
The review will be the second commissioned by the government on the controversial tax-recovery scheme. The first, led by former National Audit Office chair Amyas Morse, was completed in December 2019.
However, the terms of reference say the government "recognises that concerns continue to be raised about the loan charge and some feel strongly that it has not been handled appropriately".
"The aim of this review is to provide a fresh perspective on the matter. It is also an acknowledgement that this issue has not been brought to a close and there are ongoing concerns that warrant further scrutiny," the document adds.
The loan charge – a mechanism HMRC announced in 2016 to recover tax that has been avoided using so-called disguised remuneration schemes – has made headlines in recent years, with reports that it has forced people into financial hardship and even led some to end their lives.
The charge has sought repayments from thousands of people – often contractors or consultants – who have used these schemes over the past two decades. Around 50,000 people are thought to have made use of schemes that disguised income as loans which were never intended to be repaid, thus avoiding income tax and national insurance payments.
The Labour Party committed to a second review of the mechanism a year ago, while in opposition. In January 2024, then-shadow chancellor Rachel Reeves said “the way people [were] being treated” by HMRC over the loan charge was “not acceptable”. Labour said its review would seek evidence that HMRC is acting in a “more proportionate” way when handling new cases, and does not “pursue people who could not afford to pay” an inflated tax bill.
McCann's objectives will be to bring "the matter to a close for those affected" , while ensuring fairness for taxpayers and ensuring there is appropriate support in place for people subject to the loan charge.
The review will draw on work by lobby groups and charities such as the Low Incomes Tax Reform Group and TaxAid to "examine the barriers preventing those who are subject to the Loan Charge but have not already settled and paid their tax liabilities in full from reaching resolution with HMRC".
"It will recommend ways in which they can be encouraged to settle with HMRC," according to the terms of reference.
It will consider the terms offered to people who are subject to the loan charge but have not yet settled their tax bill, as well as whether HMRC’s settlement and debt-management processes "sufficiently take into account their ability to pay and behaviours".
It will also ask what decisions are needed to ensure any new settlement proposals avoid imposing "significant additional administrative burdens" on HMRC.
It will focus on the impact of the mechanism on people who have used disguised-remuneration schemes. McCann will also be expected to consider HMRC’s ability to tackle tax avoidance effectively in the future, as well as the impact on “wider taxpayer fairness”.
However, campaigners have criticised the scope of the review because it will not reconsider the government's position that the loan charge is fair.
The Loan Charge Action Group, a volunteer-run group that campaigns against loan charge legislation, dismissed the review as a "sham" and a "complete betrayal".
The review will report and provide independent recommendations to the exchequer secretary to the Treasury by the summer. The exchequer secretary will decide when the report is published.
The government will publish a response by the Autumn Budget.
2019 loan charge review 'flawed'
Lord Morse’s 2019 loan charge review made 20 recommendations, all but one of which the government accepted. However, it attracted criticism from across the political spectrum.
The review introduced a cut-off meaning that the loan charge could only be applied to those who had used disguised remuneration schemes since 2010, rather than 1999, when IR-35 legislation that sought to class many self-employed freelance workers as employees and requiring them to pay national insurance was introduced. This was on the basis that the law on using these schemes “became clear” from 2010 onwards.
However, both tax experts and scheme participants have contested this claim. The Loan Charge All-Party Parliamentary Group – a cross-party group of MPs with concerns about the mechanism and its implementation – said in 2020 that there were "clear flaws in the justification for the central conclusion of the review that the 'law was clear' from 2010, when experts themselves cannot agree on that point".
And a Sky News investigation last year revealed that HMRC had been pursuing people who had used loan schemes before the cut-off with a different tax mechanism. The Loan Charge APPG said this approach "flies in the face" of what Lord Morse intended.
The review’s independence has also been called into question. In its June 2020 report, the APPG said it had seen “internal documentation” showing that the Morse review “fails basic tests of what would constitute an independent review into a government policy”.
The documents, obtained via Freedom of Information legislation, showed “direct interference” in the review by HMRC and the Treasury. There had been “a clear attempt… to direct the review from the outset, seeking to influence the choice of ‘independent experts’ used to advise the review by suggesting the review avoid those who had appeared in front of select committees (most of whom had been critical of HMRC and of the loan charge), and that HMRC then sought to change the report before publication”, the group said.
McCann is expected to draw upon information and analysis provided by HMT and HMRC during the review.
The terms of reference for the latest review say the two departments “must make all possible efforts to support the review team’s work by providing them with any information that they request in a timely fashion unless there is a legal reason not to". They must tell the review team should any such reasons arise.
“If there is an administrative reason why the information cannot be shared (such as the disproportionate time required to produce it), then the reviewer has the right to raise this issue to the director of personal tax, welfare and pensions in HMT, who can then make a final decision, following consultation with HMRC,” they add.
It says the number of people working on the review, and the amount of their time spent, will be agreed between the Treasury and the reviewer.
It will be for the reviewer to decide what arrangements are needed to engage with stakeholders during the review, according to the terms of reference.
McCann will have “final say” on what is published in the report.
HMRC and the Treasury will be given the opportunity to provide factual comments on the report, including reviewing statistics where appropriate, before its publication. Information provided by the two departments to the review team and any comments on draft reports will be published once the review has concluded.
Announcing the review last week, Treasury exchequer secretary James Murray said: "The government believes that it is right that those who did not pay the right amount of income tax and National Insurance are required to resolve their affairs with HMRC.
"Accepting otherwise would be contrary to the decisions of the courts and would be unfair to the vast majority of taxpayers who have never used these schemes."
However, he added that there was concern about the charge, particularly the size of some payments and whether people were able to pay "in a reasonable timeframe".
McCann said: "The controversy surrounding the loan charge has for too long acted as a barrier to bringing matters to a close for both the individuals involved and for HMRC.
"I was pleased to be asked to help find ways whereby those involved can reach an agreement with HMRC that balances their right to be treated fairly with the expectation of the vast majority of taxpayers who have paid all of the tax and NIC due on their earnings. My review will be entirely directed to that end."
This article was updated on 29 January 2025 to correct factual inaccuracies