HMRC Loan Charge Victim

“His brain turned to mush”

Growing pressure on HMRC as Loan Charge ‘victim’ takes his own life.

Loan Charges for disguised payments have increasingly been in the news recently. In the past few months, we’ve written blogs on the government’s  disguised remuneration crackdown, as well as the proposed new Government oversight committee to oversee HMRC powers. The then Chancellor, George Osborne, introduced the Loan Charge in his 2016 budget. Did anyone predict that the consequences of his actions would be so controversial – even fatal? Almost certainly not. Yet, the daughter of one man believing he owed HMRC £120,000, claims that the turmoil caused him to take his own life.

How did it all begin?

Disguised payments first became popular back in the 1990s and throughout the 2000s. The idea was that you would be paid a small part of your monthly wage via PAYE. The rest would be paid as a ‘loan’ from a third (sometimes off-shore) company. You would never be expected to pay the loan back and, being a loan, you wouldn’t pay tax or National Insurance. Neither would your employer be paying their share of National Insurance.

Those who would gain the most, scheme promoters and employers, persuaded over 50,000 thousand contractors (frequently IT professionals, agency nurses, NHS workers and social workers) that the scheme was both legal and safe. Many of the contractors’ accountants were similarly complacent and supportive of the schemes.

Not us!

At Most Money, we’ve always been vigorous in our warnings against any such schemes.

No escape

Under the Conservative / LibDem coalition of 2010-2015, HMRC began to press the case that the loans were taxable. The courts repeatedly rejected these claims. However, in 2017 a Supreme Court decision ruled on another point – that when the pay was diverted, it was a taxable event. The schemes were no longer effective for tax purposes.

The Treasury has since claimed that it’s too late to pursue either the scheme promoters (many of whom made considerable profits) or the accountants who recommended them. However, they have seemed determined to chase the unfortunate contractors – hardly wealthy “tax dodgers” – for the tax and National Insurance contributions owed.

Some of these contractors had no choice – their employers, including many from the public sector, insisted on trust-loan arrangements as a condition of employment.

20 years retrospective repayments

Along came the 2016 budget and chancellor George Osborne brought in the loan charge. Its aim? To recoup tax going back 20 years from those who had benefited from the schemes.

Freelancers have been ordered to add up all their loans from trusts going back to 1999, declare them and make an offer to HMRC to settle the underpaid tax.

Failure to do so would result in the loan charge kicking in, with tax payable by the end of January 2020, at the individual’s highest tax rate which can be up to 45%.

‘Brain turned to mush’

It’s difficult to imagine the distress that this draconian demand must be causing contract workers up and down the country. Stress, which proved too much for one consultant engineer in his late sixties, who took his own life.

“He wrote about it and said his brain turned to mush,” his daughter, Gayle, told the BBC Today programme just the other day.

“I think the loan charge consumed him. That was all he could think about.”

Gayle, who asked the BBC not to publish her family name, added, “He said he’d spent hours and hours and hours thinking how he could get through it and resolve it. And he just couldn’t come up with anything. I just don’t think he could see any light at the end of the tunnel at all.”

It’s true that the man had been suffering from mental illness but, in a letter to his family, he made it clear that the prospect of the Loan Charge played a massive role in his worsening mental health.

Growing calls for a review

A growing number of MPs from all parties – more than 200 – have demanded a suspension and independent review of the Loan Charge policy. They warn that many people will have to sell their homes and be rendered bankrupt. 151 MPs have joined an All-Party Parliamentary Group on the loan charge. This group highlights their concerns about the effects of HMRC pressure on constituents’ mental health and family lives.

HMRC’s response is that anyone concerned about a tax bill should contact them for help. They insist that insolvency is a last resort when reclaiming money and that they don’t want to make people homeless.

Boris Johnson - warm words - any action?

On June 29th, during the Conservative leadership contest, Boris Johnson agreed that the policy needed an independent review.

“The real culprits in this matter if I may say so are not so much the individuals themselves who have decided to use the loan charge as a way of minimising their tax exposure. It’s the people who advised them that that was a sensible thing to do … It needs a proper independent review.”

However, since entering Downing Street, the silence has been deafening. All that’s needed is a suspension of the Loan Charge, followed by a review. Yet, with the deadline drawing ever closer, nothing is happening. Is the government waiting for more lives to be lost before it acts?

The Loan Charge Action Group

Last summer, the Loan Charge Action Group (LCAG) set up their own helpline – which is staffed by trained counsellors. They take calls every day.

Here to help

We are tax experts. From day one, we warned of disguised remuneration schemes. But, of course, we want to help. We’ll support and advise you on all matters of personal and business taxation.

Call us on – 020 3008 7820

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