The Loan Charge is a government measure linked to at least 10 suicides, which has led to the formation of the Loan Charge Action Group.

The minister has commissioned Ray McCann, former president of the Chartered Institute of Taxation, to lead the new independent review. The reviewer will present their final report by this summer.

The move to a new independent review has been welcomed by contracting industry specialists. Seb Maley, CEO of contractor tax and compliance specialist, Qdos, said: “This is a big moment for tens of thousands of contractors and freelancers who were lured into working through tax avoidance schemes and hit with devastating tax bills as a result of the Loan Charge. The charge itself has been a grave injustice. Rather than holding the promoters of the tax avoidance schemes accountable, the previous government handed the workers with eye-watering tax liabilities.

“At face value, a review is the right thing to do. But for the government to assume that contractors should settle their tax liabilities completely misses the point. Thousands of contractors have been stung by immoral tax avoidance schemes, which all too often disappear without a trace. The government should be holding them responsible, not contractors.

“To say that the Loan Charge has ruined lives is no understatement. By delivering on its promise to hold an independent review of this saga, the government has given hopes to the thousands of people whose lives have been changed by this ill-thought-out legislation.”

The Loan Charge, first announced in 2016, was designed to tackle historical use of contrived tax avoidance schemes that seek to avoid charges of income tax and National Insurance by disguising remuneration as a form of non-taxable payment, typically a loan.

These schemes have existed since at least the mid-1990s and have been considered by the courts. In the most notable case in 2017, the Supreme Court agreed with HMRC that schemes that redirect earnings and ultimately pay them in the form of loans do not succeed in avoiding tax.

In a further decision in 2022, the Court of Appeal confirmed that even where other parties (such as employers or agencies) have obligations to operate PAYE, the liability for income tax is that of the employee.

“The government recognises the decisions of the courts and believes 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,” a statement said.

“However, there remain ongoing concerns about the Loan Charge, including the size of liabilities owed by some of those affected and their ability to pay the tax that they owe in a reasonable timeframe.”

The new independent review aims to bring the matter to a close for those affected, while ensuring fairness for all taxpayers, and that appropriate support is in place for those subject to the Loan Charge. McCann will review the barriers preventing those subject to the Loan Charge from reaching resolution with HMRC and recommend ways in which they can be encouraged to do so.

“The government’s response to the review will be consistent with its approach to closing the tax gap and the fiscal position,” a press statement said.

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.”

Contracting industry specialists welcoming the move to a new inquiry were scathing in their criticism of HMRC for the creation of the “retrospective tax”, which left users with staggering taxes but, in their view, ignored wrongdoing by the promoters of the schemes.

Dave Chaplin, CEO of contracting authority ContractorCalculator said: “It is a long overdue and a critical step towards justice for thousands of contractors unfairly targeted by HMRC. This punitive retrospective tax has caused immeasurable harm, pushing vulnerable individuals to the brink of despair, with some tragically taking their own lives under crushing financial pressure. The human cost of this poorly conceived, poorly implemented and heavy-handed policy demands full accountability. HMRC has a lot to answer for.”

Crawford Temple, CEO of Professional Passport, the UK's independent assessor of payment intermediary compliance, said: “HMRC’s approach to tax avoidance has been fundamentally flawed. Instead of targeting the architects of these tax avoidance mechanisms, HMRC pursued individual workers, causing devastating personal consequences. It is shameful.

“HMRC’s negligence is stark: they possessed intelligence about these schemes but did not act. The loan charge scandal represents a profound breakdown in responsible tax enforcement, where victims were punished while the architects of the schemes escaped unchecked and have been allowed to thrive.

“HMRC’s inaction is systematically enabling tax avoidance schemes by failing to leverage its existing intelligence. With Real Time Information and Intermediary Reporting data at its disposal, HMRC could swiftly identify and shut down dubious tax providers. Instead, HMRC’s passive approach has allowed more schemes to proliferate, exposing contractors to significant financial risks. By not proactively matching data and taking visible and decisive enforcement action, HMRC is effectively permitting a corrosive tax evasion ecosystem to continue unchecked.

“This review represents a critical opportunity to expose and rectify these systemic failures.”

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