HM Revenue & Customs (HMRC) just announced that contractors can pause their Loan Charge settlements while the government reviews this contentious tax policy. This retroactive policy aims to tackle disguised remuneration schemes and is expected to bring in as much as £3.4 billion for the Treasury over five years. The Loan Charge specifically targets contractors who participated in loan-based payment schemes between December 9, 2010, and April 5, 2019. These schemes reimbursed them with non-taxable loans instead of traditional salaries.
Since the rollout, thousands of IT contractors have faced devastating tax bills. HMRC argues that many used these schemes to evade paying income tax. Unfortunately, the financial stress has driven some to the brink; there are reports linking the policy to at least ten suicides. The situation has garnered the backing of over 200 MPs, united in the Loan Charge and Taxpayer Fairness All-Party Parliamentary Group (APPG). They recently sent a letter to Treasury Secretary James Murray, following a meeting from August 2024 with those affected.
The APPG’s letter highlights the dire financial situations faced by many. One individual reported that their HMRC tax bill ballooned from £60,000 to £500,000. Others owe between £200,000 and £300,000, despite HMRC claiming that typical settlements hover around £13,000. The letter argued that the amounts demanded are unpayable for many: “In all eight cases [during the meeting], the individuals cannot possibly pay the sums being demanded,” they wrote. The figures presented by HMRC, they indicated, are unrealistic because people simply don’t have the funds.
Another point of contention is the retroactive nature of the Loan Charge. Many involved say they were guided into these schemes by trusted tax advisors and accountants. The APPG letter mentioned that some were funneled into umbrella companies by their agencies, which recommended the very arrangements now under scrutiny. Others chose these umbrella models to sidestep complications with IR35 legislation. The group emphasized that most affected individuals did not set out to evade taxes; they were following professional advice to comply with the law.
At the end of October 2024, the government confirmed an independent review of the policy, aimed at resolving its fallout. This marks the second such review, the first having been published in December 2019. Details about the new review’s launch and scope are still unclear, but HMRC has begun informing contractors that they can request a pause in their settlement payments until the review wraps up.
However, this information has only reached those who contacted HMRC directly, raising concerns that many others remain unaware of their options. An IT contractor, speaking to Computer Weekly, said, “They should be letting all those victims affected by the Loan Charge know what their options are.”
Though an HMRC email indicated that they have been asked to accept customer requests for a pause, it did not clarify why this wasn’t more broadly communicated. They did suggest that anyone considering a pause should also think about making a partial payment to minimize interest charges, with a promise that any payments could be refunded if the review concludes they owe nothing.
A spokesperson for the Treasury acknowledged ongoing concerns about the Loan Charge and reiterated the government’s commitment to an independent review.
In light of this recent review, campaigners from the Loan Charge Action Group (LCAG) are now urging HMRC to halt enforcement of the policy altogether. Steve Packham from LCAG argued that it’s unfair for some cases to be paused while others are not. He stressed the need for all relevant cases to be put on hold until the review is complete, pointing out the serious implications of the policy, which have affected many lives.