Loan charge is destroying lives of hard-working entrepreneurs and contractors, Chancellor is told

Fleur Anderson, Labour MP for Putney, Southfields and Roehampton, has written to Rishi Sunak stating that an estimated 50,000 people have been affected by the retrospective loan charge.

She added: “These charges are unjustified, unfair, have been poorly communicated and are putting individuals and families in - in some cases - hundreds of thousands of pounds worth of debt overnight.

“These individuals acted in good faith; being assured by tax professionals that these schemes were tax law and HMRC compliant and QC approved. Meanwhile, the promoters and tax advisers who mis-sold these umbrella schemes have faced little or no prosecution.”

Ms Anderson, who is a member of the All Party Parliamentary Loan Charge group, said: “One constituent of mine enrolled with one such umbrella scheme based in Jersey in 2014 and carried out extensive due diligence to ascertain the credibility and legality of the scheme before enrolling.

“Despite assurances the loans he was to be paid in would not be taxable, he has recently been threatened with a charge of £250,000 by HMRC and has contemplated suicide. These charges are grossly unfair and are destroying the lives of hard-working contractors and entrepreneurs.

“Ahead of the Budget statement on March 11, I urge you to scrap these charges going forward and end the retrospective application of the charge.”

The loan charge was introduced to tackle what the Treasury described as disguised remuneration schemes.

In an independent review of the loan charge, Sir Amyas Morse, the former head of the National Audit Office, concluded the schemes were a form of tax avoidance but made a series of recommendations about the design of the charge and its impact on those in its scope.

A Treasury spokesperson said: “We recognised the concerns raised by the Loan Charge Review and responded decisively by accepting all but one of its recommendations. More than 30,000 people are estimated to benefit from these changes, around 11,000 of whom will be taken out of scope of the charge altogether.”

The spokesman said that Sir Amyas’s “careful and considered” Independent Loan Charge Review explicitly sets out that the 2010 legislation made the law clear on loan schemes – that they were tax avoidance arrangements that meant people paying themselves through loans that they never had to repay.

The review found that the Loan Charge should remain in place, that disguised remuneration schemes are a form of tax avoidance and that it was right for the Government to try to tackle them, as they were unfair to the vast majority of taxpayers who pay the correct tax, the spokesman added.

The Government is currently consulting on draft legislation and will legislate for the changes in the forthcoming Finance Bill.

The Government published draft legislation in January, followed by a four week consultation period. All consultation responses received are being considered ahead of the publication of the upcoming Finance Bill, the spokesman said.

Sir Amyas Morse, in an article for The House in January 2020, said 2010 “is not… an “arbitrary” date.

“It is the date from which Finance Act 2011 ensured that tax was charged on income paid through loan schemes.

“The evidence I consistently received from tax experts was that this made loan schemes clearly taxable.

“This meets the test that I applied in determining the earliest date from which income tax was clearly payable on loan schemes – either as a result of legislation or a court ruling. The 2011 legislation was earlier than the definitive court ruling in 2017 and so tax should have been understood as being due from that point.”

Last week, it was revealed that four men and one woman had been arrested on suspicion of fraud in connection with promoting arrangements designed to get around paying the loan charge.

More than 100 HM Revenue and Customs (HMRC) officers searched business premises in Birmingham and further addresses in Coventry, Worcestershire, Northumberland, Buckinghamshire and Northern Ireland. Officers seized computers and other digital devices, as well as business and personal records. The investigations are ongoing.