Loan charge MPs call for prime ministerial intervention to prevent mass contractor bankruptcies

Prime minister Boris Johnson is facing calls from 76 MPs to resolve the government’s controversial loan charge policy out of concern that it will result in “thousands of bankruptcies” and the further proliferation of mental health issues in those affected by it.

In an open letter addressed to both the prime minister and the chancellor, Rishi Sunak, the MPs call for the pair to intervene and order HM Revenue & Customs (HMRC) to “change the course” of its loan charge policy enforcement activities.

The demand is being made in response to the disclosure of a series of internal emails in April 2021, including one sent by HMRC CEO Jim Harra that appeared to question the legal foundation of the loan charge policy.

As previously reported by Computer Weekly, HMRC has sought to play down the significance of the emails since their contents came to light several months ago.

The MPs’ letter, seen by Computer Weekly, states: “New information has come to light that further highlights the injustice people are facing that should lead to the government accepting that further charges are needed, both to avoid the otherwise disastrous consequences of allowing HMRC to enforce the loan charge, and to bring a fair and just resolution to what remains a deeply controversial policy.”

The missive’s signatories are members of the All-Party Parliamentary Loan Charge and Taxpayer Fairness Group, who have publicly spoken out in support of the letter’s contents.

The loan charge policy, introduced in November 2019, is intended to help HMRC claw back the money it claims contractors in various industries, including IT, avoided paying in the past by opting to have part of their salary paid to them in the form of non-taxable loans.

These loan-based remuneration schemes were typically run by offshore employee benefits trusts, and were often erroneously marketed as being an HMRC-compliant means for contractors to bolster their take-home pay, with contractors often advised to join such schemes by respected tax advisers.  

However, tens of thousands of contractors that participated in such schemes have now been hit with life-changing, six-figure tax bills from HMRC relating to work they did between December 2010 and 5 April 2019, reportedly resulting in mass bankruptcies. The policy has also been linked to at least seven suicides.

The open letter cited Harra’s admission, within the emails, that he had “repeatedly tried to obtain legal analysis” to support the policy’s enforcement “with very little success” and the fact that he described the fallout from its introduction as a “debacle”, as proof that ministerial intervention is urgently required to resolve the issues caused by the loan charge implementation.

“Most people facing the loan charge are clearly victims of mis-selling, having been assured that schemes were fully compliant and given no warning by advisers and scheme promoters of any risk,” said the open letter.

“There have been no convictions and no prosecutions of anyone for promoting/operating loan schemes, nor have promotors/operators of schemes been asked to pay a penny, despite making millions.”

The letter concluded with a warning that if HMRC is allowed to proceed with enforcing the loan charge, this will “inevitably lead to thousands of bankruptcies”, which will negatively impact the amount of tax the government agency collects in the years to come.

“Each [bankruptcy] has a cost to the taxpayer and in many cases, for many affected, being declared bankrupt will prevent them from working again or paying any taxes,” the letter continued.

“We are also concerned about the mental health impact, with the fact that there have been suicides of people facing the loan charge previously.”

It added: “We urge you to finally accept that the loan charge is not fair and to consider all options to resolve this issue fairly and practically, once and for all, to end this nightmare for tens of thousands of UK families, but also to get HMRC out of the situation they are in, having failed to predict the impact of the loan charge.”

Computer Weekly understands that the MPs who signed the letter are still awaiting feedback from the prime minister and the chancellor on its contents. 

Computer Weekly contacted HMRC for a response to the letter, and a spokesperson defended the organisation’s enforcement of the policy, claiming that loan-based remuneration schemes enable tax avoidance that “deprive public services of vital funding”.

The spokesperson also pointed to the outcome of a 2019 independent review of the loan charge, which was conducted by former National Audit Office comptroller Sir Amyas Morse, as proof that the policy is right to remain in force. 

“Sir Amyas Morse led an independent review into the policy in 2019 and concluded that it was right that the loan charge remain in force,” the spokesperson said. “The government recognised concerns around its impact, which is why it accepted all but one of the recommendations made, leading to significant changes in legislation. 

“We encourage any customers who are worried about paying their loan charge liability to please contact us and we will be able to help them. We have been clear that we will work with customers to enter manageable payment plans to spread their tax liability and ensure that they are affordable.”