The loan charge has triggered a mental health crisis, MPs warn the Chancellor

The letter to Mr Hunt states: “MPs are receiving communications from very distressed constituents who are unable to pay. This has triggered a new mental health crisis; we have already had direct and indirect reports of people reporting suicidal thoughts. HMRC have had four years to issue these discovery assessments, based on what was detailed within the 2018/19 tax returns, yet they are charging backdated interest, which is unfair. As is well known, people were advised to use these schemes including by chartered accountants and accredited tax advisers. It is also the case that HMRC failed to warn them not to use these arrangements at the time. HMRC should also have sought any disputed tax from agencies/employers and failed to do so, so to seek these astronomical demands now is totally unfair.”

The MPs’ letter also states that the level of these demands mean that many people will have no choice but to sell their home.

"HMRC have continually given the misleading impression that people will not lose their homes, yet in reality are well aware that this will be inevitable for some,’’ the letter states. “We are aware that HMRC seeks to put charges on people’s homes (and has done so) but for many, with the level of amounts being demanded and with interest being added every day, the only possible way they can pay the debt is by selling their family home, something that HMRC officers have admitted that they realise in conversations with people. This is simply unacceptable.

“In one case reported to us, HMRC issued the demand by post, in the dreaded brown envelope, despite having on record that the individual concerned had previously attempted to commit suicide due to the whole situation and that they were only to contact them by email. This is disgraceful and shows the reality of HMRC’s treatment of people.”

A Government spokesperson said: “The Loan Charge targeted tax avoidance schemes that sought to avoid income tax and National Insurance contributions by paying earnings in the form of loans. Significant changes were made to the Loan Charge following Lord Morse's independent review in 2019 which reduced its impact. HMRC takes the wellbeing of all taxpayers very seriously and recognises that large tax liabilities can add significant pressures for some people. Taxpayers are supported by HMRC’s trained advisers who, where appropriate, also encourage them to contact organisations such as Samaritans or Mind for specialised help.

"We never forget that there’s a human story behind every unpaid tax bill. No-one is more aware of that than our settlement teams, who have supported more than 20,000 customers to settle their use of disguised remuneration schemes. This has secured more than £3bn for the UK’s essential public services.”