Inside the Loan Charge controversy

Many parents have in recent decades turned to contracting as a way of getting more flexibility and some have become caught up in complex tax legislation changes, including the controversial Loan Charge.

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The Loan Charge was introduced in 2017 and is a charge on all payroll remuneration through loans made since 1999.  Loan remuneration arrangements were fairly common under the umbrella companies that contractors were encouraged to sign up to following the passing of IR35 legislation which aimed to crack down on ‘disguised employment’.  The charge has resulted in contractors being landed with huge tax bills.

In 2019, the Government appointed Sir Amyas Morse to lead a review of the Loan Charge to consider whether it was “an appropriate way” of dealing with disguised remuneration loan schemes.  However, the Loan Charge Action Group says new evidence has since come to light that shows the review process was flawed.

The Loan Charge and Taxpayer Fairness All Party Parliamentary Group has expressed concern about the retrospective nature of the charge and the impact it has on those facing it.

Labour recently signalled that it will review the Loan Charge if it wins a general election, saying that HMRC seems to have spent more time pursuing individual contractors rather than the umbrella companies which have made lots of money from the remuneration schemes.  HMRC has defended its position and, in response to concerns about individuals facing high tax bills, it says it takes “the wellbeing of all taxpayers very seriously” and has put support in place, such as paying by installments.

Here IT professional Kirti Shukla, a working mum and member of the Loan Charge Action Group, gives her view of the charge and outlines how it has affected her.

“I never thought I would end up caught in a national scandal and to be pushed to the brink of despair by the UK Government, but like thousands of others ordinary working people, that is exactly what has happened to me as part of the Loan Charge Scandal.

“I had just got married at the late age of 35 and was keen to start a family and knew my biological clock was ticking away. Like most parents, having children and providing for them was our priority and I would have to balance my work and family life throughout the phases of bringing up kids.

“I had worked for some time as a temporary worker, but then a different contract opportunity came up. The agency involved said I would have to set up as a limited company and get professional insurance cover. This was all new to me as up until that point I has always been an employee. I needed to work, so I found an accountant who set up my company and just like that, I was self-employed.

“On my second contract, there was increasing worry about ‘IR35 legislation’ which I had never heard about and that I could face investigation from HMRC for not really being self-employed. The advice of sector colleagues, my accountant and the agency was that it would be safer to work through an umbrella company and that this was the only safe option to be compliant and to protect me and my family.

“On the agency’s advice, I met with a UK-based umbrella company who explained they would run my payroll. Their chartered accountant would inform HMRC of my earnings, ensure all taxes due were paid and I would become an employee of theirs. There was no option with the end client to become an employee of theirs and being an employee again sounded safe and sensible way of operating. For this, I would pay a considerable chunk of my monthly earnings, around 18%, but this seemed reasonable to sort all the admin of the payroll and deal my tax returns and HMRC on my behalf. I could sleep without any worry again.

The nightmare begins

“I worked away in this way for over a decade, during that time I was blessed with two daughters and was enjoying family life. Then out of the blue, I received a brown envelope addressed to me. I opened it and was shocked and surprised to read a letter from HMRC. To my horror, it said that HMRC believed I may have been involved in a tax avoidance scheme.

“I was appalled and scared. I have never sought to avoid tax in my life. Surely, this had to be a mistake, but from there the nightmare only got worse.

“I found that I was facing the ‘Loan Charge’ and that if I didn’t pay the sums that HMRC was claiming I owed (and admit to being a deliberate tax avoider) I would be hit with an even bigger tax bill all in one year, plus penalties and interest. I was even threatened with having to pay Inheritance Tax. I was terrified and felt ill.

“When I contacted HMRC and actually managed to speak to someone, they were not only unhelpful, but were accusatory and made me feel guilty. My mental health suffered and this had an impact on my family as I felt withdrawn and unable to deal with this, accompanied with the fear of losing everything I had worked for, possibly even our home.

Support network

“Like a miracle from God, just as I was having suicidal thoughts and not able to function as a mother, a wife or do my job, my husband saw an advert in a Sunday newspaper. I made my first call for help to Loan Charge Action Group (LCAG), a group set up by other people facing the same unfair and aggressive action from HMRC. Without this support network, I don’t know what I would have done.

“LCAG and the Loan Charge and Taxpayer Fairness All Party Parliamentary Group, one of the largest APPGs in Parliament, have gradually exposed the rotten mess of what is now known as the Loan Charge Scandal. It seems that HMRC came up with the policy themselves – not any democratically elected Government – and, in my view, they did so to cover up the fact that they failed to deal with this for years despite knowing about these umbrella schemes that people were recommended to use and which they declared on their tax returns.

“Instead, they appear to have come up with a retrospective law that would allow them to go back years and issue tax demands based simply on what they guessed people might have paid if working on an employee basis (in my case more than I actually ever earned) and without the inconvenience of having to abide by statutory taxpayer protections on time limits and without people being able to go through the normal tax court system.

“At the same time, it is my view that they and the Government did nothing about those who made millions – in some cases hundreds of millions – from operating these schemes (and all the umbrella companies and accountants who recommended them in return for commission that we didn’t know about). Of course, it is much easier to go after individuals who can’t afford to defend themselves or pay expensive lawyers than it is to go after companies and millionaire directors. Yet this decision is at the heart of the injustice of the whole Loan Charge Scandal.

“The Government impact assessment claimed there would be “no impact on family life”, but I know from my own experience and those of many other Loan Charge victims that this is a lie of huge proportions. It has had a devastating impact on tens of thousands of families, including those already made bankrupt, those already forced to sell their home and above all, on the families of the 10 confirmed Loan Charge suicide victims and also the families of those who have attempted suicide.

“I believe the Loan Charge is an affront to natural justice and a stain on our reputation as a fair democracy. Thankfully, in the wake of the awful Post Office Scandal, people and journalists now realise the way once respected public bodies can act and people are waking up to the Loan Charge Scandal.

“It is too late for the families of those who have suffered suicide, attempted suicide, breakdown and divorce. Too late for the woman who felt she had no choice but to have an abortion because she wouldn’t be able to afford a child due to HMRC’s demands. Too late for the pensioners who have lost their pensions and have been forced back into work. It is not, though, too late for the whole sorry scandal to be exposed and for accountability. We who have been affected are fighting back and we will keep fighting for justice. Our families, as well as truth and justice, depend on it.”

*If you have experienced something similar, please contact us at [email protected].

Comments [1]

  • Claire says:

    I am also a working mum that is suffering from this retrospective taxation. Thank you for sharing your story. I hope it will help others come forward and join the fight with LCAG. Our MP’s really need to wake up to the damage this policy is creating.

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