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Fri, 26 February 2021

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Bankruptcies, destroyed careers, and suicide – the 'disastrous' Loan Charge will affect thousands

Bankruptcies, destroyed careers, and suicide – the 'disastrous' Loan Charge will affect thousands
7 min read

Vice chair of the Loan Charge APPG warns that evidence shows that if the Loan Charge comes in on the 5th of April as planned, there will be a disastrous impact on thousands of people, including bankruptcies, selling of family homes, loss of careers and worst of all, there have already been some suicides.


At a time when Brexit is inevitably dominating debate in Westminster, there are regrettably few other issues getting much attention. One issue, though, perhaps surprisingly, has caught the attention of many MP’s following approaches from constituents is the 2019 Loan Charge.

The loan charge was introduced by the 2017 Finance Act, in effect as a retrospective tax on loans taken out by those working on contract or freelance basis through a personal services company or similar arrangement. Many of these schemes were set up after the hurried implementation of IR35 almost 20 years ago, and those affected include nurses, social workers, IT and business services professionals.  For many, signing up for the loan scheme was conditional on taking that contract, and in many cases the word “loan” never appears on paperwork. Even those who sought advice from their accountants were assured the schemes were safe to use.

HMRC did nothing about it until in 2016 when HMRC announced many of these schemes “did not work” and were in effect tax avoidance schemes – without contacting those who might have been affected, merely updating their website. Overnight, people became tax-avoiders, some going back 20 years, despite having completed their tax returns and settling their tax with HMRC each year.

It comes into effect on the 5th April, and is going to have a disastrous impact on the lives of thousands of people, and their families. Some have been notified and been given unrealistic deadlines to “admit” to their past tax avoidance and agree a settlement plan, even when HMRC have provided no substantive information with the demand, such as the relevant tax year, or how the demand was calculated.  Many more have not heard from HMRC at all, and have no idea whether or not this will happen after the April 5th deadline.

The Supreme Court recently found that the responsibility for tax lay with the employers, yet HMRC is taking no action against any employers or those who set up the schemes. 

The increasing level of concern among MPs led to the Government accepting a new clause to the Finance Bill in early January. Following this I worked with Sir Ed Davey MP, who had tabled the new clause, and with Conservative MP Ross Thomson, who represents many impacted oil and gas workers in Aberdeen, to set up an All-Party Parliamentary Group. In a short time we now have a remarkable 99 MPs and peers as members, with more joining every week. 

At a time of such profound divisions, it is heartening to be able to work cross-party with other MPs and peers who are equally concerned about the injustice of the Loan Charge.

We believed, following the acceptance of the new clause by the Government, that we had secured a genuine and much needed review into the Loan Charge. Alas, it became clear a few weeks later, that there was no such review, merely a whitewash of a report.

HMRC and Treasury Minister Mel Stride announced that regardless of the new clause accepted on 8th January, the Loan Charge would come in, unchanged. This makes a mockery of the term ‘review’. My fellow Vice-Chair, Ross Thomson, shared our collective view at Prime Minister’s Questions, that the Treasury had acted in bad faith.   

Whilst the Treasury and HMRC continue to refuse to review the policy, the Loan Charge APPG have conducted our own Loan Charge Inquiry. The evidence that we have heard – two oral evidence sessions and over 500 written submissions - exposes a simple but shocking reality; that HMRC and the Treasury have been chronically disingenuous and unwilling to answer questions, when it comes to the Loan Charge. As one of many examples, three times Financial Secretary Mel Stride was asked on Radio 4 Moneybox if the convictions he and HMRC cite as evidence of HMRC pursing promoters were actually for loan schemes. Three times, live on air, he refused to answer, because he knows they were not, as has been confirmed to us by lawyers.

I raised with him, on the floor of the House of Commons, the harrowing testimony of the family of a man who had committed suicide facing the Loan Charge. He simply ignored this, refusing to even acknowledge the fact that a family had come to give evidence in Parliament that their loved one had killed themselves due to this awful policy. 

The evidence sent to our Inquiry also shows that if the Loan Charge comes in as planned, there will be a disastrous impact on thousands of people, including bankruptcies, selling of family homes, loss of careers and worst of all, there have already been some suicides. MPs and peers from the Loan Charge APPG heard the harrowing testimony of the family who had taken the remarkably courageous decision to tell the Loan Charge Inquiry of their loved one, who had taken his own life facing the Loan Charge. They did so, to try to stop other families going through what they are going through.

It was one of the most disturbing things I’ve heard since becoming an MP. The whole room was in tears or struggling to hold them back. The family were clear, the suicide letter was explicit. There was no question from the testimony, that the direct cause of this poor man’s anguish and ultimate death was the Loan Charge

This was and is an example of a Government policy going badly wrong. It appears the policy was introduced to cover up HMRC’s failures to deal with the issues at the time, their failures to open many enquiries and their failure to tackle the promoters of schemes. The impact assessment was surely negligent in not even estimating the number of bankruptcies or the likely stress on those affected. Nor has any assessment been made (or at least admitted to) of the huge cost the Loan Charge will have not only to families, but to the economy as people’s jobs, lives and careers are ruined.    

I am absolutely clear, as are other members of the Loan Charge APPG, that people should pay the right amount of tax. Yet one of the things that has been so unfair about this is that HMRC have continued to demonise those facing the Loan Charge as “aggressive tax avoiders” when the evidence we have seen clearly shows that the main motivations for signing up to these arrangements were actually due to IR35 legislation, to not wanting the burden of a limited company and because people took professional advice and followed it. Some did not even know they were in loan schemes. Our evidence backs up entirely the conclusion of the House of Lords Economic Affairs Committee that slammed HMRC for going after the “low-hanging fruit” of ordinary hardworking taxpayers, at the same time as failing to tackle promoters.

So far, Treasury Ministers and even the Prime Minister, with whom the issue has been raised at PMQ twice and directly by families, are refusing to listen. Conservative peer Lord Forsyth, Chairman of the Economic Affairs Committee, described the Treasury as “tin-eared” on the matter. They are indeed, but considering that they and HMRC now know of suicides resulting from this policy and still refuse to listen, they are also showing a callous indifference, which is shameful. Combine that with the way the Treasury and HMRC have dealt with this issue from start to finish, their conduct runs counter to the core principles of public service.

Thankfully more and more MPs are aware of this scandal.  It is time that the Treasury and HMRC stopped trying to make excuses and issuing misleading statements but instead accepted the impact their demands are having, and agreed to a delay. There is just enough time to delay it, before it does huge damage and the Loan Charge APPG will do all we can to make it happen.

Ruth Cadbury is the Labour MP for Brentford and Isleworth & Vice-Chair of the Loan Charge APPG

Read the most recent article written by Ruth Cadbury MP - So many students are missing out on access to the free period product scheme in schools

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