The UK Government has promised that it will review the controversial tax avoidance crackdown on employees amid concerns that it could bankrupt contractors.

According to The Telegraph, Liberal Democrat MP Ed Davey secured an amendment to the Loan Charge in the House of Commons on Tuesday which would require Her Majesty’s Treasury to review the policy before 30 March 2019. Davey had asked Prime Minister Theresa May if she would meet with him and “a cross-party delegation of MPs to discuss this new review into the Loan Charge”.

The Loan Charge, first announced in 2016, is set to target those who used so-called disguised remuneration schemes to avoid tax as far back as 1999. It is slated to come into force in April 2019 and will aim to recover losses from the arrangements as contractors have to either settle their tax affairs or face penalties.

Disguised remuneration schemes typically involved income being paid in the form of loans from offshore companies which would never be repaid. They were understood by many to be legal at the time, and many contractors followed the advice of experts, but the Government's position is that they have always been defective.

The schemes became popular after IR35 was introduced, which changed the way contractors are taxed, and resulted in many who sought ways to lessen their bill. The schemes were then outlawed with the 2017 Finance Bill, which introduced the Loan Charge.

Those who have campaigned against the Loan Charge argue that it unfairly targets contractors retrospectively, demanding tax bills for employment arrangements that were legal and declared to the HMRC at the time and puts some at risk of bankruptcy or even losing their homes.

“It is simply not acceptable for a government to introduce a law that makes illegal something someone did years ago, when that action was considered legal,” Davey said. “That is a clear principle.”

The review is set to assess the impact of the Loan Charge.

Treasury Minister Mel Stride accepted the amendment but described the schemes as “aggressive tax avoidance” and reiterated the government’s position that they have always been unlawful.

Julia Kermode, Chief Executive of the Freelancer and Contractor Services Association, commented on the announcement on the amendment, “I am pleased to hear that Ed Davey has been successful in pursuit of an amendment, forcing government to review any move to retrospectively claim tax going back many years.”

“While the FCSA would never condone anyone not paying taxes that are due, the loan charge will do untold damage to the lives of many innocent contractors who were unwittingly lured into such toxic schemes. It is these schemes that the government really needs to focus on and shut them down once and for all,” Kermode said.

A government spokesperson added that the amendment does not change the legislation but will ensure that a review will be completed before 5 April 2019, the date that the Loan Charge will come into force.