Loan charge MPs urge chancellor to get HMRC to soften contractor settlements

The chancellor, Rishi Sunak, is being called upon to instruct HM Revenue & Customs (HMRC) to revise its decision not to offer individuals caught within the scope of the government’s controversial loan charge policy more affordable settlement terms.

The three co-chairs of the Loan Charge All Party Parliamentary Group (APPG) have signed a letter addressed to Sunak imploring him to intervene, while also calling for the 30 September 2020 loan charge settlement date to be further delayed until the end of January 2021.

The letter said such a delay would give HMRC a more “realistic chance” of completing the settlement process, which is something the APPG claims it has neither the “time nor resource” to do now, because of the extra work it is having to do in the light of the Covid-19 pandemic.

“We are writing to implore you to instruct HMRC to offer a genuine, fair settlement opportunity which would allow many people to reach affordable settlement and also allow HMRC to collect some of the tax it claims it is owed (even though, as you know, this has never been legally proven),” the letter to the chancellor states.

“Despite the misleading impression regularly given, the reality of the current so-called ‘settlement terms’ being offered by HMRC is that they are grossly unfair and punitive, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount, both in total and in terms of monthly payments.”

The letter continues: “The payment terms that HMRC are insisting on are often far harsher than those imposed on people guilty of criminal offences such as fraud and theft which, as has been raised before, is indicative of the vindictive way those facing the loan charge are treated.”

The letter follows the publication of guidance last week by HMRC, which warned those affected by the policy to stop “holding out hope” of revised down settlement figures being offered to them, ahead of the 30 September deadline.

As things currently stand, this is the date by which those affected by the policy are expected to have provided HMRC with details on their 2018-19 self-assessment tax returns about their outstanding loan charge balances. This is also the deadline by which those affected should have arrangements in place detailing how they intend to pay back the tax that HMRC claims they owe.

As previously detailed by Computer Weekly, the loan charge policy is billed by HMRC as a clampdown on individuals it claims participated in disguised remuneration schemes between 9 December 2010 and 5 April 2019 by opting to be paid for work they did in the form of non-taxable loans.

In HMRC’s view, these loans were never intended to be repaid, should be reclassified as income and taxed accordingly. The loan charge settlements it is now seeking from those who took part in these schemes represent the amount of unpaid tax it claims these individuals owe.

Estimates suggest tens of thousands of those affected by the policy are IT contractors, many of whom have been left with huge, life-changing tax bills that they have no means of paying without falling into financial ruin or bankruptcy.

For this reason, the Loan Charge APPG and several other campaign groups have previously called on HMRC to consider asking those caught within the policy’s scope to repay a percentage of the total tax they owe. The tax collection agency has repeatedly and publicly dismissed this idea.

At the same time, one of the many criticisms levelled at the policy is the fact that HMRC is doggedly pursuing the participants of these schemes, while failing to take to task the individuals who promoted these setups while marketing them as HMRC approved.

The Loan Charge APPG makes reference to this in its letter, while also making the point that not everyone affected by the policy knowingly used these schemes to avoid paying tax.

“To enter a settlement with HMRC over loan schemes, individuals are forced to declare wrongdoing and to state that they knew they had avoided tax, when for many people this is simply not the case,” the letter says.

“It is grossly unfair to force individuals to admit they have intentionally avoided paying tax and that they knew they were doing so. It has never been legally proven that this is the case, yet these individuals have been denied the right to defend themselves in court – a right which is afforded to all other taxpayers.”

It adds: “Settlements should be about HMRC seeking to reclaim some of the disputed tax it believes is owed, not about forcing individuals to admit guilt and knowledge of wrongdoing at the time, even when this is actually not true.”

The letter also states that, in cases where individuals have reached a settlement with HMRC, the agency has continued to seek payment from them, which is why the APPG is also calling for all settlements to be “full and final”.

“We are therefore writing to propose a fair, reasonable and affordable settlement opportunity that taxpayers could enter into without admitting wrongdoing and which represents full and final settlement of all obligations under the loan charge or open enquiries/assessments,” says the letter.  

“This would not only remove the nightmare and reduce the very real risk of self-harm and mental breakdown for many people, but it would also give HMRC a far better chance of concluding settlements and bringing in disputed tax revenue, rather than resulting in many bankruptcies.”