“Cruel and unacceptable”: Loan Charge scandal is “terrible mess”

HMRC slammed in Parliament for “disruption and disaster” caused by “simply scandalous” policy

The Loan Charge scandal was debated intensely in Parliament last week, with MPs criticising HMRC for its approach to recovering back taxes from contractors.

Sir Jacob Rees-Mogg said the Loan Charge was “a classic example of the state abusing its power through aggressive tax collection”, and labelled the policy “basically unconstitutional”.

The debate took place on Thursday last week (18th January). Over the course of more than two and a half hours, MPs from across the political spectrum aired their constituent’s grievances and their own concerns regarding the Loan Charge.

During the debate – introduced by Sammy Wilson, chair of the Loan Charge & Taxpayer Fairness All-Party Parliamentary Group (APPG) – many MPs compared the Loan Charge to the Horizon scandal at the Post Office.

Drawing “frightening” parallels between the scandals, Wilson argued victims of tax avoidance schemes “are being battered by the cosh” of HMRC officials who are attempting to “extract money” from “ordinary workers”.


HMRC acts as “judge, jury and executioner”

The greatest concern about the Loan Charge is that it has been linked to 10 suicides and 13 further suicide attempts.

Speaking in the early stages of the debate, Greg Smith – Conservative MP for Buckingham – said the Loan Charge had caused “despair and destruction” and accused HMRC of acting as “judge, jury and executioner”.

Others called on HMRC to effectively target the designers and promoters of tax avoidance schemes. Gerald Jones, Labour MP for the Welsh constituency Merthyr Tydfil and Rhymney, criticised the tax office for being “extremely tough” on victims of disguised remuneration schemes but “weaker on their architects”.


Tax authority under fire for IR35, too

As well as debating the Loan Charge, MPs also raised IR35 and the way HMRC enforces compliance with the off-payroll rules.

David Davis, one of many Conservative MPs who has previously called for IR35 reform to be scrapped, labelled IR35 “a disgrace”. He added that the Loan Charge scandal was “if not precipitated, then certainly made worse” by the introduction of IR35 in 1999.

“The complex rules associated with the IR35 triggered part of this behaviour pattern. What is interesting is that the behaviour of HMRC on IR35 pretty much mirrors its behaviour on the Loan Charge”, Davis said.


“Ungoverned space” poses risk to workers

Many MPs involved in the debate also highlighted the need for regulation of the sector. Sir Robert Buckland, Conservative MP for South Swindon, highlighted that the flexible working sector is “an ungoverned space… where innocent people are being exploited”.

On “the regulation of promoters”, Buckland proposed that the promotion and sale of “financial service products” should “come under the control of the Financial Conduct Authority”. Similarly, John McDonnell suggested the need for “a thorough debate” about “regulatory mechanisms”.


Remorseless response from HMRC

Quoted in the Telegraph following the debate, an HMRC spokesperson said: “It is our responsibility to collect the tax that people owe”.

“We take the wellbeing of all taxpayers very seriously and recognise that dealing with large tax liabilities can lead to pressure on individuals”, and referenced payment plans as one of the support measures in place for those affected by the Loan Charge.

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

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  • Dave says:

    Isn’t the Loan Charge where people were intentionally circumventing tax by paying themself a massive unpayable loan rather than a wage to be taxed on?

    As a contractor, I despise the people that break the system and force things upon us like IR35.
    Whilst it’s sad some people committed suicide, I have zero sympathy for someone being caught for tax evasion which these schemes clearly were. These people were clearly intelligently using a scheme which was evading pretty much ANY taxation at all. They knew what they were doing all along.

    It’s the one time I side with HMRC

  • Geoff says:

    Absolutely agree with Dave below. A scheme to pay no tax by pretending earnings were loans, which could never be repaid, is akin to fraud. They knew this was dodgy now claim innocence.

  • Jamie Barnes says:

    HMRC don’t care a jot for wellbeing.

    On numerous occasions while discussing my life-changing six figure tax bill I became upset and told my dedicated adviser that my life and marriage was suffering and I was contemplating suicide, the response I got every time was ‘You’re going over old ground – call the helpline’

    My bill was over £135k. I paid £30k up front (borrowing on my flexible mortgage) and will now pay £600 a month for 15 years.

    On top of losing a 3rd of my net income through IR35 and blanket ‘inside’ decisions by companies I’ve worked for, HMRC have crippled me financially. I have no recourse with AML to whom I also paid fees, so am worse off than I would have been if I hadn’t been suckered into the scheme.

    My only hope is that the Loan Charge is somehow revoked and I can hopefully recover from this mess.

  • Roger says:

    Dave & Geoff: Appreciate your moral high ground fellas. However, it was legal and remains so, as supreme court rulings are in direct conflict with the loan charge. The loan charge meant litigation was futile from the tax payers perspective – this is not democracy. Only some schemes used loans, there are many other schemes that don’t. Pipe up when you know something, or STFU otherwise please? HMRC needs to crack down on the people who design and market these schemes. There are 10s of thousands of people, maybe 100s, across all industries still doing this, because the introducers are excellent at marketing the compliance story. What’s HMRC doing? Screwing people up 10 years after the fact.

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