Former Brexit secretary David Davis becomes 118th Parliamentarian to warn Prime Minister of 'devastating' impact of loan charge

The open letter, which has been sent on behalf of the Loan Charge & Taxpayer Fairness All Party Parliamentary Group (APPG), claims the loan charge will have a devastating impact on thousands of UK families.

The loan charge, announced by Government in 2016, was designed to tackle tax avoidance schemes where individuals receive income in the form of loans that are not repaid to avoid income tax.

Following a public outcry, after thousands of people on modest incomes faced large and unexpected tax bills, the Government commissioned a review into the policy in 2019.

The review has not ended the controversy. The APPG letter calls on the Prime Minister and Chancellor to find a "fair resolution” to the loan charge saga.

The letter states: "If the Government does not act to instruct HMRC to change course, then we are fearful of what the consequences will be when HMRC enforce the loan charge."

The letter states that new information has come to light "that further highlights the injustice people are facing that should lead to the Government accepting that further changes are needed, both to avoid the otherwise disastrous consequences of allowing HMRC to enforce the loan charge and to bring a fair and just resolution to what remains a deeply controversial policy".

The letter claims that HMRC tried and failed to find legal precedent for them being permitted to pursue individuals, rather than employers. It also states that most people facing the loan charge are victims of mis-selling, having been assured that schemes were fully compliant and given no warning by advisers and scheme promoters of any risk.

The letter continues: "There have been no convictions and no prosecutions of anyone for promoting/operating loan schemes nor have promoters/operators of schemes been asked to pay a penny, despite making millions.

"If HMRC enforce the loan charge, it will inevitably lead to thousands of bankruptcies, which makes no sense at all, each one has a cost to the taxpayer and in many cases, for many affected, being declared bankrupt will prevent them from working again or paying any taxes.

"We are also concerned about the mental health impact, with the fact that there have been suicides of people facing the loan charge previously.

"We urge you to finally accept that the loan charge is not fair and to consider all options to resolve this issue, fairly and practically, once and for all, to end this nightmare for tens of thousands of UK families but also to get HMRC out of the situation they are in, having failed to predict the impact of the loan charge.

"We hope that the Government will explore all options for resolving ‘the Loan Charge debacle’ which would finally allow the Government, parliamentarians and families affected, to move on."

A man affected by the loan charge, told The Yorkshire Post: " My participation..was declared by the scheme operator and by myself on my tax returns. The cost to me has been tremendous stress. My relationship fell apart due to stress and arguments about money and my family is now broken.

"I have had to find over £200,000 to settle with HMRC which I am in the process of paying. I turned 60 this year and cannot see how I can possibly retire now as my retirement plan had been to use equity in my home which no longer exists. I have been on anti-depressants, I don’t sleep, I feel ashamed and cannot tell my children why and so carry this stress and guilt alone."

A spokesman for the APPG said the group had not received a response to the letter from the Prime Minister or the Chancellor.

When quizzed by The Yorkshire Post in June, the Chancellor Rishi Sunak said the loan charge had “already been through” a lot of scrutiny and been amended.

Responding to concerns about the loan charge, a Government spokesperson has told The Yorkshire Post: “The loan charge was introduced to ensure those who used disguised remuneration tax avoidance schemes paid their fair share of income tax and national insurance contributions. It is only right that we continue to tackle these type of avoidance schemes as they deprive our public services of vital funding."

“We encourage anyone who is worried about paying the loan charge to contact HMRC so they can help. HMRC are committed to working with taxpayers to enter manageable payment plans to spread their tax liability and ensure that they are affordable.”

Sir Amyas Morse led an independent review into the policy in 2019 and concluded that it was right that the loan charge remain in force, the spokesman added.

"The Government recognised concerns around its impact, which is why it accepted all but one of the recommendations made, leading to significant changes in legislation.

"Sir Amyas Morse made clear in his report that his recommended changes to the loan charge policy applied to both individuals and employers, unless otherwise specified, as Finance Act 2017 did not draw a distinction between the two.

"HMRC will take action against schemes marketed as enabling contractors to pay less tax than they should. Contractors who are worried that they have been offered such a scheme can contact HMRC.

"Around 20 promoters have moved out of promoting altogether in the last six years due to HMRC activity." the statement said.

In November 2020 HMRC launched an awareness campaign “Tax Avoidance – Don’t get caught out” targeted at contractors in the IT, medical and oil and gas industries where promoters are particularly active.

The spokesman added: "This campaign advises taxpayers how to spot avoidance schemes, including those promoted by umbrella companies, explains the risks involved and where people can get more information to enable them to make informed choices if they want to leave an avoidance scheme.

Draft guidance, which is available at GOV.UK, shows how the Government is tackling tax avoidance promoters, the statement added.

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