The Loan Charge (Again)

I remain am increasingly worried by the number of constituents who lives have been ruined by the fact that they have to pay large sums of back-tax to Her Majesty's Revenue and Customs (HMRC).   They have to do this because they were lured or ordered into schemes that advised them to minimise the tax they paid in bygone years.  I have mentioned this before on my website and make no apologies for doing so again because it is hitting a great number of constituents and is simply wrong.

Put simply such schemes advised them to have their money channelled through a system where their employers or earnings were sent to an organisation which then passed on their pay to them in the form of a loan thereby reducing their tax.  Indeed joining these schemes was often made mandatory by some employers and they were deemed perfectly acceptable to the tax authorities.  Financial advisers advised that such financial arrangements were perfectly legal and accepted by HMRC which indeed they were.

For some twenty years now people have been using such schemes and year after year they have declared their use to HMRC and the taxation authorities have accepted them as being perfectly legitimate. 

In truth the schemes never anticipated that payment loans would be repaid and obviously people realised they were a good way to reduce the tax they paid.  In fairness that is true.  But this was well known and certainly so by  HMRC who year after year accepted the tax returns of such people.

Now, suddenly, over the last few years, HMRC has reversed its position and demanded in what are called loan charge repayments that all who used such schemes must pay back tax that it believes they avoided.  This was despite the fact that HMRC has previously accepted and approved the schemes and participants had acted in good faith and honestly. 

I estimate this has probably hit several hundred of my constituents and here's the rub; the majority of them are not by any means wealthy.  I have met with teachers, nurses, window cleaners, waiters, plumbers, manual workers and many others who are all in the same boat. These loan schemes were used mainly by normal working people who are now desolated by the sudden requirement to pay so much tax.

All of them have had huge tax demands for immediate payment with any delays resulting in huge HMRC directed interest charges.  This screams to me of being utterly unfair indeed immoral as people on slender means often go from day to day with regard to income and the way they live.  How can such people suddenly pay back so much?  If they delay interest rates charged are exorbitant. 

One person I met told me that the interest rate charges are double what was owed and he simply could see no way ahead.  I am told that apparently this sudden huge tax burden may have driven some people to suicide.  The individuals I show in the attached photograph (taken in my Beckenham Office in February) are normal, decent, hard-working  people who just do not know what to do about their situation and they certainly did not break the law.  They have come to me in despair and I feel I must do all I can to help them.  This is a situation any of us could be in too.

I have now written twice to Treasury ministers, seen them on at least three occasions and indeed, last February,  was a co-signature with many other Conservative MPs in a letter to the (then) Chancellor of the Exchequer, Phillip Hammond, asking that the who matter of Loan Charge repayments be reviewed (shown below).  The Government promised a review of this whole matter by October 2019 and I expect to see this and people caught out by these loan schemes treated with the utmost sympathy as they have done nothing wrong or illegal.


Dear Philip,


We are writing to you as a group of Conservative colleagues who are deeply concerned about the 2019 Loan Charge and the effect this will have on a number of our constituents, as well as on the contracting service industry in the UK.

We are very pleased that the Treasury decided to accept NC26 in the 2018 Finance Bill and that there will now be a review of the Loan Charge, reporting by the end of March.

We wish to make clear that this review must be genuine, but also to urge you to announce an immediate delay or suspension to the introduction of the Loan Charge, in order to allow for a proper and full review of the policy. This must happen before it is too late and individuals are made bankrupt and lives ruined.  

Freedom of Information requests have exposed that the original impact assessment did not predict the number of bankruptcies or the effect on those families affected by the Loan Charge. Regardless of claims that HMRC will agree Time To Pay to help people, the reality is that the sums involved in disputed retrospective tax going back to 1999 are simply too large to be affordable, even over a longer period than the five years offered. The reality is that if the policy continues unamended, there will be many bankruptcies, at a significant cost to the taxpayer. Some individuals affected will be unable to work again, following a bankruptcy,  and quite a number that we are aware of are already retired. The human impact, which is becoming increasingly apparent, will be serious.  

HMRC have the discretion, by law, to not collect tax deemed due under the Loan Charge. It would be just and correct for the Treasury to direct that they exercise this discretion, pending a proper review. Doing so would allow for that proper review to take place and avoid the personal catastrophes that will otherwise befall many people and their families, including some of our constituents. 

We would recommend that you announce that the settlement deadline is postponed for at least six (6) months, to October 2019. A genuine review cannot, realistically, take place whilst HMRC are continuing to push people into settling disputed tax sums and causing distress. In order for the review to be genuine, the settlement date should be postponed and this announcement made swiftly. 

As you know, there is significant concern amongst Conservative colleagues about the Loan Charge, its fairness and its impact on those affected. It is particularly concerning that the Loan Charge allows HMRC to pursue people with closed tax years. These are cases where an enquiry was opened in the past, and then subsequently closed after HMRC confirmed that all necessary tax had been paid - in some cases, even issuing refunds. With such people now being pursued for tax in respect of these closed years, it is not only undeniably retrospective, but also simply wrong. It undermines the basic principle of tax certainty that underpins the UK tax system.  

We urge you to listen and announce a necessary pause to implementing the Loan Charge, to allow for a genuine and proper review, to assess the real impact, and to ensure that this contentious and troubling policy be properly reviewed.

A full debate on the review, on the floor of the House in Government time, should also be part of this process and allow MPs to raise their and their constituents’ concerns. Could you let us know if the Government will find time for this debate?

We look forward to hearing from you and are also happy to meet to discuss this matter.

Best wishes,

Bob Stewart