In 1999, the then-Labour government introduced IR 35, a tax law which sought to class many self-employed freelance workers as employers, meaning they would have to pay National Insurance.
Thousands subsequently signed up to schemes, promoted by lawyers and accountants, allowing them to legally avoid paying National Insurance.
This usually involved the freelancers paying money to offshore companies, who loaned it back to them without expecting the loan to be repaid.
After the government shut this loophole, the Treasury used the loan charge to ask the freelancers to pay backdated tax.
HMRC estimates around 50,000 people are affected by the loan charge.
Announcing a review of the loan charge, Treasury Minister 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”.
He said the review would aim “to bring the matter to a close or those affected; ensure fairness for all taxpayers; and ensure that appropriate support is in place for those subject to the loan charge”.
It will be conducted by Ray McCann, a former President of the Chartered Institute of Taxation, who is expected to report back by the summer.
Judith Freedman, a professor of tax law and policy at Oxford University, said she was “full of admiration” for McCann adding: “Not an easy job but if anyone can sort it out he can.”
Conservative MP Greg Smith, and co-chair of the Loan Charge All Party Parliamentary Group (APPG), said the announcement of the review was “a farce”.
“This is not the review that was promised nor the review that is so desperately needed and the APPG will continue to push for a genuine inquiry into this scandal,” he said.
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