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Cross-party MPs and tax experts have attacked HM Revenue & Customs for its unjust treatment of tens of thousands of self-employed UK workers who were caught up in a tax avoidance crackdown since linked to several suicides.
The government introduced the “loan charge” in 2019 in a bid to clamp down on so-called “disguised remuneration” schemes, which involved workers across a range of sectors being paid in loans via offshore trusts.
The disguised remuneration schemes were mainly used by self-employed people following recommendations from professional advisers, agencies or employers, with many unaware they were considered vehicles for tax avoidance by HMRC.
The loan charge, which came into force from April 2019, originally required those affected to pay tax on up to 20 years of income in one financial year, creating unaffordable demands.
In a parliamentary debate on the loan scheme on Thursday, MPs from across the political divide attacked HMRC for its role in the scandal.
Several drew parallels with the Post Office affair which has grabbed the attention of the nation in recent weeks after it became the subject of an ITV drama.
“How can a body of the state — the Post Office in the case of the Horizon scandal, and HMRC in the case of the loan charge scandal — be autonomous in being judge, jury and executioner at the same time,” said Greg Smith, Conservative MP for Buckingham.
“Checks and balances must be built into HMRC if we are to see justice for the loan charge victims.”
Darren Jones, shadow chief secretary to the Treasury, said: “Ordinary people who are victims of mis-selling are facing financial ruin and personal harm because of the way in which HMRC has pursued the loan charge.”
HMRC has said it has reported itself to its watchdog, the Independent Office for Police Conduct, 10 times over the suicide of individuals facing the loan charge.
Hannah Bardell, Scottish National Party MP for Livingston, asked: “How many more folk need to die before this will be sorted out?”
Meanwhile former Lord Chancellor Sir Robert Buckland called for “a root-and-branch review and a change to the nature of HMRC”.
The Treasury agreed to additional measures in December 2019 that would make it easier for people to pay the money back and roughly halved the period for which the loan charge applied. But campaigners have called for the government to take further action.
On Friday, tax experts weighed in on the criticism of HMRC and the loan charge policy. They argued it was disproportionate and ineffective — particularly as five years after it was enacted more than 40,000 people have yet to pay the levy.
Sarah Gabbai, a tax lawyer at McDermott Will & Emery UK, said: “The human cost has been absolutely devastating and the government have done nothing to address this. There’s no right of appeal to challenge the applicability of this legislation.”
She argued that paying the loan charge does not actually change the individual’s underlying tax position. “That’s not only unfair but cruel. Even after people have paid HMRC life-changing sums they know that HMRC are entitled to make ongoing demands,” Gabbai said.
Ray McCann, a tax consultant and former HMRC inspector, said parliamentarians carried much of the responsibility for the loan charge as they had voted for it, with little objections raised at the time, despite warnings from tax bodies. He added that the lack of fair settlement terms had been “shameful”.
HMRC said: “The loan charge seeks to recover tax that has been avoided by disguising income as loans. It is our responsibility to collect the tax that people owe.”
It added it took the wellbeing of taxpayers “very seriously” and was committed to “supporting customers who need extra help with their tax liabilities”.