‘I did consider suicide’: The agony of Britain’s loan charge victims

As you turn off the light tonight, spare a thought for members of the Loan Charge Action Group, who will be facing hours of anguish.

The loan charge is driving people to despair, reports Greg Wright
The loan charge is driving people to despair, reports Greg Wright

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David Davis MP has spoken out against the loan charge Photo: Stefan Rousseau/PA Wire

Members of the group say they are being pushed over the edge by a Government policy that has been denounced as “devastating” and “draconian” by MPs.

One campaigner said: “I did consider suicide in my darker thoughts; but this was instantly dismissed due to the effect on my wife and kids; whether monetary or the effect of losing a husband or father. The charge has been a personal hell for me.”

Another loan charge campaigner said: “I have been struggling to function, feel helpless, break down and cry in public and have had time off from work. I feel like a criminal and I have always been a law-abiding citizen and role model.”

Few Government policies have attracted such a chorus of cross-party condemnation. The loan charge was introduced in response to the Treasury’s concerns about “disguised remuneration schemes” which involved individuals being paid through loans, usually via an offshore trust in a low- or no-tax jurisdiction, which they did not have to repay.

According to the Treasury, the loan charge means people paying themselves through loans will have to contribute their “fair share” to pay for our public services. Workers from a wide range of professions – including locum doctors and nurses – have been hit with unexpected tax bills of up to tens of thousands of pounds dating back to 1999.

The All-Party Parliamentary Group on the Loan Charge (APPG) argues that the charge is retrospective, overrides taxpayer protections and undermines the rule of law. MPs who have spoken against the loan charge include Justine Greening and David Davis.

The conclusion to the APPG’s comprehensive report into the loan charge states: “In the vast majority of cases examined, these arrangements were not entered as aggressive tax avoidance, but after professional advice.

“A substantial number of people, especially in the public sector, did not even understand their pay involved loan payments. Worst of all, the evidence seen and heard by the APPG shows there is a clear risk to the mental welfare of people facing the Loan Charge, including a known suicide risk.”

The loan charge campaigners who have contacted The Yorkshire Post all tell a similar story; they organised their financial affairs in line with advice provided by experts and their employer.

They were told the schemes were HMRC-compliant, and approved by top QCs. They had no desire to avoid their duties as tax-payers. Many did not know their pay involved loan payments.

Another campaigner, a middle-aged man who is based in Yorkshire, said: “The financial impact of the 2019 Loan Charge alone, for myself and my family, is somewhere between the loss of the family home and bankruptcy.

“Not only is this life-changing and career-threatening for myself, it threatens and brings uncertainty for my two daughters at university and my wife who runs a small local business employing two permanent and 10 part-time staff.

“I have always considered myself a confident and outgoing person. Since being informed of the impending 2019 loan charge, I have become withdrawn and now constantly suffer lengthy bouts of depression, constant anxiety and insomnia. Work is suffering, and I think it will only be a matter of time before the stress, in this respect, takes its toll.

“On the very worst days it has only been the support from the Loan Charge Action Group (LCAG), and now my wife, that continue to pull me through.

“I truly believe that the ‘knock-on’ effects of this legislation to individuals and their dependants will be tragic.”

The man took the decision to move into IT contracting more than 15 years ago following uncertainty in his existing permanent IT position.

He recalled: “The nature of the industry was such that a more flexible workforce was required, and companies encouraged this and used it to their advantage. Having previously worked alongside other contractors I was aware of recent changes to tax legislation and the complex nature of IR35 (rules which affect all contractors who do not meet HMRC’s definition of ‘self-employment’), which contractors were constantly trying to keep on the right side of.

“Following research, it was clear that the simplest option that would not only avoid me falling foul of IR35 but keep me fully HMRC-compliant, reduce admin and avoid the rigmarole of running a limited company was to use one of the many contractor umbrella schemes available.

He recalled: “Following further research, discussion with other contractors and a number phone calls to an umbrella company that I had seen advertised in IT publications and on contractor websites, I was reassured by the providers that the scheme was indeed HMRC-compliant and a legitimate and perfectly legal method of managing tax in line with IR35 and other tax legislation.

“The scheme was in no way ‘covert’. I was informed it was registered with HMRC and seemed a credible and more modern alternative to the traditional ‘tried and tested’ mechanism used by contractors of setting up a limited company and paying yourself a wage plus dividends.

“With administration fees, the tax benefits of using the scheme were minimal in comparison to running my own limited company but reducing or avoiding tax was in no way the motivation for my decision.

“I was with the umbrella company for five years during which time the employer information and all required pay details were always clearly and fully documented on my annual tax returns.

“Not having any questions or concerns raised by HMRC during this period provided reassurance that everything was indeed above board and fully compliant.

“I left the umbrella company, and indeed contracting, when I took a full-time permanent position closer to home.

“It was a year following the end of my employment by the umbrella company that I first received a letter from HMRC stating that they were opening an ‘enquiry’ into one of the annual tax returns. This was the first indication I had that there may be an issue, from an HMRC compliance perspective, with the mechanics used by the umbrella company.

“I contacted my former employers and was informed that the enquiry was routine and nothing of any concern.”

But the man was in for a nasty shock.

He said: “In July 2018, almost 10 years since ceasing my employment with the umbrella company, I received a letter from HMRC informing me that I would be subject to the ‘2019 Loan Charge’.

“This was the first time I was made aware that the loan charge legislation existed. Using the few pieces of information that I had retained over the years I was able to research and discover that the umbrella company I was employed by had dissolved without trace.”

He is mystified by claims from HMRC that umbrella schemes ‘never worked’.

He said: “Why was this not communicated at any time during the last 15 years, when everything was clearly documented on annual tax returns?

“If they ‘never worked’ then why is the loan charge legislation required when HMRC already had the power to challenge it?”

The final outcome of the loan charge saga remains unclear, but the action group has vowed to battle on doggedly in the face of an unyielding Treasury.

There is no sign that the Government will suspend or review the loan charge, despite opposition from a growing number of MPs.

The charge was legislated in the Finance (No.2) Act 2017 and is part of a package which was estimated to yield £3.2bn over five years.

The Treasury said: “The Government is clear that the legislation is not retrospective. It applies a tax charge to outstanding DR loan balances at 5 April 2019. It does not change the tax position of any previous year, the tax treatment of any historic transaction, or the outcome of any open compliance checks.

“By the time of its introduction on 5 April 2019, individuals had three years since the Budget 2016 announcement to act to stop it applying, either by settling their liability with HMRC or repaying their loans.

“HMRC has encouraged settlement by contacting those affected. This charge on DR loans is targeted at a particularly artificial and hard-to-tackle form of tax abuse that has been going on in many forms for many years.

“The Government considers that the rationale for this charge is clear and robust, and has been consistently clear there is no intention to change the relevant legislation which has been enacted by Parliament.”