Will a no-deal Brexit save taxpayers from the Loan Charge?

    A picture of a forest in winter with several trees with blue question mars on them

    Will a no-deal Brexit save taxpayers from the Loan Charge?

    Recent developments suggest that Labour will force an amendment to the Finance Bill that will prevent the collection of taxes in the event of a no-deal Brexit, effectively preventing the Government from deliberately crashing out of the European Union without a trade deal or transitional arrangement.

    However, with Parliament gridlocked over exactly how Brexit should be implemented, the European Union refusing to renegotiate, and the seemingly unsolvable Irish border issue, the Government and local councils have stepped up planning for the event of a no-deal, and many people fear that the United Kingdom could even crash out of the EU by accident when the clock runs out.

    This leaves open the possibility, however unlikely, that the UK could crash out accidentally, triggering the Finance Bill amendment and rendering the Government unable to legally collect tax revenue – an intriguing proposition, particularly for contractors who were using loan schemes that now face crippling tax bills under the 2019 Loan Charge, due to take effect on 6th April 2019, just eight days after the United Kingdom is due to leave the European Union.

    This may have some contractors getting their hopes up, and even hoping for a no-deal – which economists agree would be disastrous for the economy – if it means the loan charge would be uncollectable or even delayed a bit further.  However, regardless of what people may be saying down the pub, unfortunately this would not be the case.

    The main reason for this is that Yvette Cooper’s amendment number 7, which would kick in if Britain leaves the EU without a deal, if enacted, only applies to a small section of the Finance Bill that relates to EU withdrawal and the ability of the Government to make adjustments to certain EU-related taxes in the event of EU withdrawal – it’s essentially been added as a safety net to allow the Treasury to make tweaks to the tax code according to the type of Brexit that eventually happens, as this was still unclear at Budget.  What the amendment would do is prevent this in a no-deal scenario, making a disastrous situation even worse for the Government – but only applies to certain EU-related laws.  There has been considerable confusion surrounding this because of the way it has been reported, and because technically the Finance Act does need to be enacted every year in order for HMRC to collect tax in that year, but the amendment does not seek to block the whole Bill, income tax in general, or even just the Loan Charge itself; it applies to EU-related taxes and duties.

    Another thing to consider is that the Loan Charge was actually brought in with Finance Act 2017 two years ago, and has already received Royal Assent.  Regardless of changes, delays or blockages to this year’s Finance Bill, the Loan Charge is already law – but it came with a two year grace period to allow taxpayers to get their affairs in order, which is about to run out.  Indeed, Brexit has not helped the chances of any amendments or delays to the Loan Charge at all, using up nearly all the political bandwidth available in Westminster at the same exact time when lobbyists were trying to get their voices heard about the Loan Charge.

    A more interesting development for contractors is another, less-publicised amendment to the Finance Bill tabled by Lib Dem MP Sir Edward Davey, which is attempting to request the Government make uncomfortable comparisons between the Loan Charge, and a proposed change to the Offshore rules what would see HMRC’s powers extended to go back twelve years rather than the current six.  This is an interesting way to frame an objection to the Loan Charge because it specifically uses the Government’s inconsistent approach against them, and could yet provide the political ammunition needed to provoke changes to the unpopular law.

    8th January 2019.