Contractor shares “impossible demand” from tax office with leading tax lawyer
A UK-based Corporate Tax Lawyer for a global law firm – McDermott, Will & Emery – is campaigning for change on the Loan Charge.
Sarah Gabbai – who has worked on a Loan Charge settlement proposal – contacted her local MP “requesting that she and her colleagues in the Treasury Select Committee give the matter serious consideration”.
In response, one contractor shared a letter received from HMRC, detailing a request for £185,840 – something he called the “impossible demand”
Dated the 24th March 2023, the letter requested that its recipient pay the sum “no later than 23 April 2023” – giving the self-employed worker just 30 days to pay.
The letter was shared by Gabbai, and demonstrates the scope of the Loan Charge and the impact it can have.
The Loan Charge scandal
The Loan Charge was introduced by HMRC to retrospectively recover unpaid taxes from contractors who had been paid via disguised remuneration schemes.
These are a type of tax avoidance scheme. In most cases, contractors caught by the Loan Charge did not know that working this way was illegal.
HMRC has been regularly criticised for recovering the taxes from contractors – many of whom are effectively the victims of tax fraud – rather than the operators of the tax avoidance scheme itself.
The way the Loan Charge is calculated is considered a significant part of the problem, treating all unpaid taxes as income in one year. The sums owed have typically been accrued over a number of years, but contractors issued with bills are expected to settle the additional tax almost immediately.
In some circumstances, this had tragic outcomes. There have been 10 suicides linked to the Loan Charge, as confirmed in correspondence between the Treasury Select Committee and HMRC’s CEO this year.
A heavily criticised policy under the microscope
The Loan Charge has been widely condemned and criticised, both for its handling and for the consequences it has had on those affected.
Earlier this year, Carol Vorderman was critical of the scandal and the failure of the media to raise awareness of it.
Meanwhile, a leading financial journalist at the Telegraph, Mike Warburton, called it “the worst legislation ever introduced by Parliament” and its retrospective reach “an affront to common justice”.
Such is the controversy surrounding this charge, it has resulted in the Loan Charge Action Group and the All-Party Parliamentary Loan Charge and Taxpayer Group (APPG), both of which lobby for a change in policy.
Recently, the Loan Charge Action Group issued an open letter to the Prime Minister and the Chancellor which has been signed by 150 MPs.
The letter highlights that “the Loan Charge has failed to stop the promotion of tax avoidance schemes” and that those who were “missold these arrangements… are being hit with bills they cannot possibly pay”.
Clearly an unreasonable timeline but in general I have not much sympathy for those caught up in these schemes. There was an artificial arrangement to take a loan from the company instead of salary, which they knew they would not repay. It was therefore not a loan and should have been taxed.
People then claiming innocence that this was tax avoidance are fooling no-one. It is because of schemes like this that IR35 was foisted on the rest of us.
Agree with Geoff 100%
Addressing disguised remuneration is why IR35 was foisted on the rest of us.
The rest of us who were paying taxes and living within the post-tax means.
As an example, someone who bought a house having more disposable ‘income’ via the loan charge could perhaps afford a £500k as an example. Someone on the same day rate but being taxed accordingly could perhaps afford a £350k house. That £500k house is now worth £1m and that £350k house £700k.
Even after paying back the loan-charge, the likelihood is that those exploiting it will have benefitted far beyond the simple taxation amounts.
In terms of those (ab)using the scheme – they are not uneducated school leavers with a future performing manual labour, these are limited company directors who were fully cognizant of their behaviors.
Don’t want to do the time? Don’t do the crime.
(That said, the pay-back notice once caught by the loan-charge does strike me as ridiculously short)
The amounts demanded are often multiples of the income received.
Including penalties, IHT, forward and backward interest.
The fact that all victims were coerced into providing HMRC with a false declaration is just the icing on the cake.
Anyone fancy working in a country with 280% income tax (my own figures used an example)?
I would go further and ask is income tax lawful in the first instance?
These schemes were and still are perfectly legal and are actively being marketed to this day.
Only a fool would pay more tax to an incompetent government than the legal minimum required.
Personally I have taken my assets and skills elsewhere, HMRC will never receive another penny from me under the force of violence.
As usual, a total lack of knowledge on this subject by those foolish enough to reply without any proper insight.
Below is why the Gestapo finance wing at HMRC feel the need to have an agenda with ordinary contractors who used these schemes. Any way to extort more revenue is their mantra, and always has been.
1. Some umbrellas partially used loans and trusts in underlying schemes to remunerate workers
. 2. There is a whole tax code that deals with the taxation of employer loans – they are taxed very cheaply on an annual basis until such time as the loan is written off or repaid.
3. HMRC had repeatedly tried to argue that the loans were taxable as earnings. 4.
The Courts and Tribunals repeatedly told HMRC that their argument did not work – the special rules for loans had to be abided by.
5. Eventually in Rangers, HMRC changed their argument. They argued (at the 3rd hearing) that the funds were taxable (from the employer) as earnings long before some of them were paid as loans to the workers.
6. However, the Rangers result was a double-edged sword for HMRC. It vindicated their opposition to these schemes but meant they had failed to get their employee targets. The verdict found the employer liable
. 7. So the loan charge (a new 20 year retrospective tax on the workers) was introduced to get HMRC out of that particular hole.
8. Now any unpaid loans would be seen as outstanding PAYE income all due in one year at the top rates
. 9. Deductions spiralled with unexplained employers NI, inheritance tax all calculated from exaggerated gross agency fees.
10. HMRC Behavioural Insights team used propaganda to paint their victims as tax evaders although they legally owed nothing.
11. Access to judicial review and appeal cases became irrelevant due to loan charge timescales and diminishing access to the European Court of Human Rights.
12. Parliamentary scrutiny was blocked by assigning loan charge architect, Mel Stride, to the chair of the Treasury Select Committee.
13. Corruption is rife in HMRC BI department as they back peddle retrospective taxation based on a flawed narrative and agenda against the lowest hanging fruit (contractors are easy pickings in their eyes)
And let’s not forget….
When are HMRC going to tackle the disguised remuneration scheme that’s been running for years and pays zero taxes of any kind, yes ZERO!
Members of the House of Lords are paid an “allowance” for expenses rather than as a salary as an employee, they don’t have to pay tax or national insurance on it.
It means if they attend 150 sitting days a year, they could pocket nearly £50,000 tax free.
Also,
It’s about time we had some scrutiny of the HoL then.
Baroness Mone is one of those voting these laws through. She and her husband, Doug Barrowman also ran a cluster of loan schemes via their Knox group and would have been bankrupted had they not cooked up the loan charge with their friends in cabinet to transfer the debt to contractors instead of those running the schemes.
Final thoughts..?
More gaslighting from the government and revenue, the suicides are a direct result of the punishment strategy followed by HMRC which aims to push victims into bankruptcy.
Like IR35, the money is not important to them but several Tory donors running schemes were at risk. The existing law rendered them liable after the Rangers verdict ruled the employer was responsible for the extra PAYE. Hence the retrospective loan charge to move the liability from employer to employee.
Setting up a suicide helpline after illegally taking a person’s home, life savings, causing marriage breakdowns, loss of family, bullying from a well-funded Behavioural Insights department then claiming “Loss of life is complex and there is rarely a single cause”.
Government never answer questions on this policy and move “heaven and earth” to prevent any discussion in parliament or select committees. They just repeat the propaganda and offer time to pay or PR helplines that don’t exist. Probably the same helplines they gave the Afghan interpreters and probably just as useful.
Jim Harra already admitted there’s no legal basis for the loan charge, why does government not answer legitimate question posed by large groups of MPs, journalists, tax lawyers and the people effected. Like every bungled policy of this government, ministers will do anything to prevent it being examined in court where questions must be answered and truth must be exposed.
Truly staggering the amount of nonsense and ignorance posted on this subject. Add ‘Geoff’ and ‘Andy’ into the list of those who fail to grasp the corrupt nature of what the Gestapo finance wing are doing with no legal right!
Summary of Loan Charge issues:
1. Some umbrellas partially used loans and trusts in underlying schemes to remunerate workers.
2. There is a whole tax code that deals with the taxation of employer loans – they are taxed very cheaply on an annual basis until such time as the loan is written off or repaid.
3. HMRC had repeatedly tried to argue that the loans were taxable as earnings
. 4. The Courts and Tribunals repeatedly told HMRC that their argument did not work – the special rules for loans had to be abided by.
5. Eventually in the Rangers FC case, HMRC changed their argument. They argued (at the 3rd hearing) that the funds were taxable (from the employer) as earnings long before some of them were paid as loans to the workers.
6. However, the Rangers result was a double-edged sword for HMRC. It vindicated their opposition to these schemes but meant they had failed to get their employee targets. The verdict found the employer liable.
7. So the loan charge (a new 20 year retrospective tax on the workers) was introduced to get HMRC out of that particular hole.
8. Now any unpaid loans would be seen as outstanding PAYE income all due in one year at the top rates.
9. Deductions spiralled with unexplained employers NI, inheritance tax all calculated from exaggerated gross agency fees.
10. HMRC Behavioural Insights team used propaganda to paint their victims as tax evaders although they legally owed nothing.
11. Access to judicial review and appeal cases became irrelevant due to loan charge timescales and diminishing access to the European Court of Human Rights.
12. Parliamentary scrutiny was blocked by assigning loan charge architect, Mel Stride, to the chair of the Treasury Select Committee.
13. Corruption is rife in HMRC BI department as they back peddle retrospective taxation based on a flawed narrative and agenda against the lowest hanging fruit (contractors are easy pickings in their eyes)
When are HMRC going to tackle this disguised remuneration scheme that’s been running for years and pays zero taxes of any kind, yes ZERO!
Members of the House of Lords are paid an “allowance” for expenses rather than as a salary as an employee, they don’t have to pay tax or national insurance on it.
It means if they attend 150 sitting days a year, they could pocket nearly £50,000 tax free.
Also,
It’s about time we had some scrutiny of the HoL then.
Baroness Mone is one of those voting these laws through. She and her husband, Doug Barrowman also ran a cluster of loan schemes via their Knox group and would have been bankrupted had they not cooked up the loan charge with their friends in cabinet to transfer the debt
More gaslighting from the government and revenue, the suicides are a direct result of the punishment strategy followed by HMRC which aims to push victims into bankruptcy.
Like IR35, the money is not important to them but several Tory donors running schemes were at risk. The existing law rendered them liable after the Rangers verdict ruled the employer was responsible for the extra PAYE. Hence the retrospective loan charge to move the liability from employer to employee.
Setting up a suicide helpline after illegally taking a person’s home, life savings, causing marriage breakdowns, loss of family, bullying from a well-funded Behavioural Insights department then claiming “Loss of life is complex and there is rarely a single cause”.
Government never answer questions on this policy and move “heaven and earth” to prevent any discussion in parliament or select committees. They just repeat the propaganda and offer time to pay or PR helplines that don’t exist. Probably the same helplines they gave the Afghan interpreters and probably just as useful.
And finally….
Jim Harra already admitted there’s no legal basis for the loan charge, why does government not answer legitimate question posed by large groups of MPs, journalists, tax lawyers and the people effected. Like every bungled policy of this government, ministers will do anything to prevent it being examined in court where questions must be answered and the truth must be told and exposed.