Review provides hope for thousands facing life-changing bills due to loan charge

It’s a controversial tax policy which has been linked with 10 suicides and caused distress to thousands of people who trusted their professional advisers. But the Budget statement from the new Chancellor Rachel Reeves provided hope for everyone whose life has been thrown into chaos by the loan charge.

The new Labour Government announced at the Autumn Budget that there will be a further independent review of the loan charge, to help bring the matter to a close for those affected while ensuring fairness for all taxpayers. The announcement followed a long-running campaign by MPs and Peers who have denounced the policy as draconian. The loan charge, which was 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. There was an outcry after thousands of people on modest incomes were hit with life-changing bills, after acting on professional advice to honour their responsibilities as taxpayers. Changes were made to the loan charge following a review in 2019 which reduced its impact, but the Loan Charge & Taxpayer Fairness All Party Parliamentary Group (APPG) still believes the policy is deeply flawed.

The loan charge came under the spotlight in January during a House of Commons debate in which the DUP MP Sammy Wilson said there were “frightening parallels” between the loan charge and the Horizon IT scandal, which saw more than 700 Post Office branch managers handed criminal convictions after faulty Fujitsu accounting software made it appear as though money was missing.

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The controversial tax clampdown has affected an estimated 60,000 people and been linked to 10 suicides, the Commons was told.

Members of the Loan Charge Action Group have described the loan charge as a 'disastrous policy'. (Photo supplied by Loan Charge Action Group)Members of the Loan Charge Action Group have described the loan charge as a 'disastrous policy'. (Photo supplied by Loan Charge Action Group)
Members of the Loan Charge Action Group have described the loan charge as a 'disastrous policy'. (Photo supplied by Loan Charge Action Group)

In January, the then Treasury minister Nigel Huddleston told the House of Commons that HMRC has made 10 referrals to the Independent Office for Police Conduct where a person has taken their life, adding that HMRC has conducted internal investigations.

He said at the time: “Nine of the 10 investigations have concluded and although no misconduct was found, HMRC is taking forward organisational learning from these matters to further strengthen the support provided in identifying individuals who need extra help.”

Members of the APPG, which now has 115 members, said the new Labour Government’s announcement of the review was “very positive news”. MPs said the review must be genuinely independent and look at the whole loan charge scandal.

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During a meeting organised by the APPG with James Murray, Labour’s Exchequer Secretary to the Treasury, a number of people affected by the loan charge described how the policy had changed their lives.

The minister heard from two social workers, a nurse who supported the country throughout COVID, an investigation officer working for the police force and four individuals who had performed IT consultancy services for different industries, including an ex-RAF Pilot.

Many people affected by the loan charge said their problems began when they were placed into umbrella companies through their agencies; these companies recommended they use the arrangements now subject to the loan charge. Four of the witnesses said they had chosen to work through umbrella schemes because of concerns about the IR35 legislation; off-payroll working rules which aim to make sure that a contractor pays broadly the same Income Tax and National Insurance as an employee. A number of the witnesses were told by professional advisers that they might be at risk of challenge from HMRC if they did not use the recommended arrangements.

One of the attendees at the meeting, told The Yorkshire Post: “On the same day, I got two letters. One was from HMRC telling me I owed them £500,000 from an initial tax bill of £60,000 in connection with the loan charge, which was issued in 2017. The other letter was from the loan company (who was connected with the promoter of the scheme) for a sum of around £120,000 for the repayment of the loan.

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“I was totally wrecked. I ended the day by walking in front of a minicab in an attempt to kill myself. Luckily, I survived.

“I had previously written to HMRC asking them to stop sending me the ‘brown envelope letters’ and engage with me directly via email.

“But the letters kept coming. I have heard horrific stories of people who have attempted to settle with HMRC in connection with the loan charge.”

“I have twice had somebody from HMRC appear on my doorstep in connection with the demand for half a million pounds, despite the fact that they previously agreed to only contact me by email.”

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“It’s not just the people who are directly affected by the loan charge who are suffering; it’s also impacting their family and everyone they know.”

The APPG said that, in common with the vast majority of those affected by the loan charge scandal, the people who attended the meeting with Mr Murray did not set out to avoid tax. They all used the schemes because they wanted to be compliant with the law.

A letter to the Minister from the APPG said: “All of these people had taken and then followed professional advice, from either their work agencies or trusted advisers, which included chartered accountants, as well as accredited tax advisers.

“In all eight cases, the individuals cannot possibly pay the sums being demanded. They never actually had much of what HMRC claims should have been paid in tax, because they paid a significant proportion of their remuneration in fees to the promoters/operators of the schemes on the basis that these scheme providers were ensuring compliance and paying the necessary tax due.

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HMRC also has levied interest, penalties and in some cases inheritance tax meaning that the already unaffordable bills become even larger, which, according to the MPs, is even more unfair considering that they were given professional advice to use them and clear assurances of legitimacy and compliance.

The letter continues: “As well as being unfair and reckless sending out demands that people cannot possibly afford on any payment terms it is also utterly futile. This of course means that the HMRC figures of how much they will collect from the loan charge and associated activity is completely spurious, as it is impossible for them to collect anything like this amount, when people simply cannot pay. This must be a key point for the promised review to consider, as it means that the basis of the whole policy and approach is seriously flawed.

“Four of the witnesses broke down while giving testimony, because they became so distressed going through their case. Two of those in attendance had attempted suicide. These are presumably two of the thirteen such people that HMRC admitted to knowing about (and referring to the Independent Office of Police Conduct) in their letter to the APPG dated March 29 2023 in reply to a letter we had sent on February 16 2023.”

Another individual broke down when he explained that his teenage son’s suicide note included how his father had “been distant” with him, something that he attributes to his pre-occupation with attempts to resolve the financial problems caused by the loan charge.

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“Two of the individuals explained how they were having to sell their family home as a direct result of the demands HMRC has made of them. This is contrary to the HMRC rhetoric that they will not force anyone to sell their home,’’ the MPs said.

Some of the individuals who are classified as vulnerable have experienced HMRC breaching their own guidelines and agreed protocol, the MPs stated. In one case, contact was made with them using their partner’s mobile phone whilst their partner was in hospital undergoing cancer treatment, the MPs said.

“It is clear from the Independent Office of Police Conduct in their letter to us dated March 29 2023 that they mandated HMRC to take action to prevent the sort of failures that have led to this kind of wholly unacceptable behaviour. Since the meeting, one vulnerable individual who gave testimony has had three home visits from HMRC when they are not supposed to do this.”

A Government spokesperson said: “We recognise that concerns continue to be raised about the Loan Charge.

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“The government will honour its commitment to hold an independent review of the Loan Charge to help bring the matter to a close for those affected whilst ensuring fairness for all taxpayers.”

An HMRC spokesperson previously told The Yorkshire Post: “We appreciate there’s a human story behind every tax bill and we take the wellbeing of all taxpayers seriously.

“We recognise dealing with large tax liabilities can lead to pressure on individuals and we are committed to supporting customers who need extra help.

“Our message to anyone who is worried about paying what they owe is: please contact us as soon as possible to talk about your options.”

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HMRC said the support in place to help people settle their previous tax avoidance includes offering payment by instalments: these arrangements are based on what the taxpayer can afford, and there’s no upper limit over how long we can spread payments.

HMRC said it is committed to identifying and supporting customers who need extra help with their tax affairs and have made significant improvements to this service over the last few years.  

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