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.
A large number of workers on modest salaries - including frontline NHS workers - have been hit with life-changing and unexpected tax bills due to the loan charge.
Evidence uncovered by the Loan Charge and Taxpayer Fairness All-Party Parliamentary Group found that, in the vast majority of cases, these arrangements were not entered as aggressive tax avoidance and were often a condition of employment, especially in the public sector.
A substantial number of people, especially in the public sector, did not know or understand that their pay arrangements involved loans, according to the APPG.
Baroness Susan Kramer, the vice chairman of the APPG said: “At the heart of the loan charge scandal is the way the Government and HMRC have pursued the ordinary people who were advised to use loan schemes whilst not seeking a penny from those who promoted and operated schemes and those who recommended them.
“It’s galling that some of those who profited from recommending and promoting schemes have since sought to make even more money by claiming to be able to get people out of the awful situation that the same firms put them in.
“It’s time that the Government stopped denying this clear injustice and agreed to end the loan charge nightmare for thousands of ordinary families and instead looked at those who profited from putting people into these schemes in the first place”.
The tax barrister Keith Gordon said: "It is clear that the predicament that many contractors face could be attributed to the fault of many parties and agencies. Yet the only persons suffering are the contractors themselves who were doing little more than trusting professionals to look after their tax affairs and were, therefore, the most innocent of the parties involved in this debacle."
Julia Kermode, the founder of iwork.co.uk, which protects the UK’s independent workforce, said: "What we really need is government intervention to tackle the promoters of schemes, to outlaw the financial kickbacks and to properly regulate the industry. It’s ludicrous that they continue to do nothing."
A Government spokesperson previously 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. We must uphold the fundamental principle that individuals are responsible for their own tax affairs, and it is right that we continue to tackle these type of avoidance schemes as they deprive public services of vital funding.
“We encourage any customers who are worried about paying their loan charge liability to please contact HMRC, who will be able to help them. HMRC has been clear that it will work with customers to enter manageable payment plans to spread their tax liability and ensure that they are affordable”.
Some companies that engage contractors may choose to do so through agencies or umbrella companies, and there is no reason a contractor should have to use one that is not fully compliant with tax law, according to a Government spokesman.
In a statement, a spokesman said: "Anything that sounds too good to be true almost certainly is. HMRC will take action where processes or arrangements are designed or marketed to pay less tax than should be paid."
"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. HMRC recently published a summary of responses to a call for evidence on tackling Disguised Remuneration tax avoidance, which sets out respondents views on the use of disguised remuneration in the flexible labour market, including umbrella company compliance, and the Government’s response."
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