Contractors affected by a “draconian” tax avoidance rule continue to be at risk of taking their own lives, a cross-party group of Parliamentarians has warned.
The 2019 Loan Charge was introduced to tax users of “disguised remuneration” umbrella company schemes in which contractors were paid the majority of their contract receipts in tax-free loans via offshore entities such as trusts. Controversially, however, the tax rule applies to the outstanding loan balances, giving it a quasi-retrospective scope.
Users of the umbrella schemes, who were under the impression that the schemes were legal at the time they were paid through them, have now been left with substantial tax bills, in some cases spanning several years’ payments. Campaigners, including tax professionals, have argued that the retrospective nature of the charge is unconstitutional and contrary to the established principle of being able to plan one’s tax affairs with certainty. The scope of the charge, initially twenty years, was limited to loan payments made after December 2010 after a review of the levy by Sir Amyas Morse last December.
Several individuals are reported to have taken their own lives as a direct result of the financial ruin caused by crippling tax bills under the 2019 Loan Charge. The cross-party Loan Charge All-Party Parliamentary Group (APPG), which has lobbied for the charge to apply only to payments from the date it was enacted onwards, warned again on Monday that the suicide risk remains high amid the economic chaos of the Covid-19 pandemic.
“We appreciate that there is so much going on at the moment in this country & politically, but we do need to remind journalists & other MPs that there remains a serious suicide risk if the #LoanCharge remains in place retrospectively back to 2010,” said the APPG in a tweet.
They went on to quote written evidence they had received by an affected taxpayer: “I have been extremely depressed and have had suicidal thoughts thinking about how this will affect my financial situation in having to pay back potentially thousands of pounds and how thousands of people are let off having to pay nothing….
“I will be due tens of thousands of pounds and will never be able to pay my mortgage and essential household bills unless I sell my home, declare bankruptcy and potentially become homeless.”
The APPG had previously written to chancellor of the exchequer Rishi Sunak in April expressing their concerns that the economic shutdown caused by the Covid-19 pandemic would highly exacerbate an already perilous situation for those affected by the Loan Charge, with many out of work and unable to access the Self-Employed Income Support Scheme (SEISS), but still being chased by HMRC for tax due under the levy.
“We are writing as a matter of urgency following the announcement of financial assistance for some self-employed people facing the Covid-19 crisis and the lockdown,” said the APPG in their letter to Mr Sunak.
“This has a direct and seriously problematic impact for people facing the loan charge and awaiting the final form of the legislation.
“The announcement has suddenly and unexpectedly put many thousands of people facing the loan charge in a very problematic position, as the financial assistance offered is only available to those who have already submitted (or who can now quickly finalise and submit) their 2018/19 tax return [by April 23]. The Government and HMRC have, as you know, told people facing the loan charge that their tax return does not need to be finalised until 30 September 2020, as changes are planned to the loan charge legislation in the forthcoming Finance Bill.
The letter, dated April 2, continues: “The requirement for people to finalise their 2018/19 tax returns in the next three weeks is putting people facing the loan charge issue in an impossible position. They are unable to finalise their tax returns until the final form of the loan charge legislation is known, which will not happen until the Finance Bill has been debated and passed by Parliament. Without finalising their tax return they are not able to access the financial assistance that they are entitled to and which is, in many cases, much needed.
“Previous announcements by the Treasury and HMRC had given people until the end of September 2020 to see the final legislation, to discuss settlements with HMRC and to finalise their tax returns. This was the right, and necessary, approach. But, under the unforeseen circumstances resulting from Covid-19 crisis, this no longer works for those who need to seek assistance from the newly announced self-employment scheme.
“For this reason, the loan charge must now be delayed. We call on you to make an announcement immediately that the loan charge will be deferred by one year and will now fall due on 5th April 2020, in the 2019/20 tax year.
“This will allow such individuals to complete their 2018/19 tax return immediately (without mention of the loan charge) and to access the government support which they so urgently require.”
In a written response to the APPG, Penny Ciniewicz, director general of customer compliance at HMRC, said: “”I can confirm that late filing penalties and interest will be waived, provided customers file their 2018-19 tax return by 30 September 2020, as previously announced.
“HMRC is working hard to support taxpayers affected by the Covid-19 outbreak. You will also be aware of the Chancellor’s announcement on measures to support the self-employed during the outbreak. Special arrangements will be put in place to ensure that those liable to the loan charge can benefit from the self-employed income support scheme where appropriate, even if they have not filed their 2018-19 tax return. Guidance will be published shortly on GOV.UK.”
The official Loan Charge guidance was updated on May 1.
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17th June 2020.
