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HM Revenue and Customs’ (HMRC) behaviour is needlessly adding to the stress and anxiety suffered by contractors caught by its controversial loan charge policy, a cross-party group of MPs has been told.
During a sitting of the Loan Charge All Party Parliamentary Group (APPG) in the Houses of Parliament on 4 February, five contractors discussed their treatment by HMRC after finding themselves in the tax collection agency’s crosshairs since the loan charge policy was introduced in November 2017.
The policy forms the central tenet of a disguised remuneration clampdown by HMRC, which is geared towards recouping the billions of pounds in unpaid employment taxes it claims thousands of contractors avoided paying by joining loan remuneration schemes.
Such schemes would have seen contractors reimbursed for the work they did in the form of non-taxable loans, rather than a conventional salary. In HMRC’s view, these loans were never intended to be repaid and should have been classified as taxable income, and it is now pursuing participants for backdated tax payments that – in many cases – constitute life-changing sums of money.
The policy has been widely criticised on various fronts, due to its retrospective nature, the fact that the loan schemes people participated in were not illegal to use, and were – in many cases – backed by tax experts and Queen’s Counsels.
In conversation with contractors
Four out of five of the contractors present at the meeting asked for their identities to be protected either in full, through the use of pseudonyms, or partially by requesting they only be referred to by their first names.
One of the contractors, known as Katherine, is reported to have felt “under intense and relentless pressure” to pay £400,000 in taxes HMRC claimed she owed having participated in loan schemes both before and after 2010.
She opted to settle in 2018, and sold her home to raise the required funds. She told the Loan Charge APPG that it was either a case of “losing her home or losing her health”, and claims to have been left unable to work for the past 18 months because of the emotional and mental burnout caused by the situation.
Contractor affected by loan charge policy
Katherine was also told the 2018 settlement would save her having to pay £100,000 in further loan charge-related fees, but has since been pursued for additional payments in the region of £60,000 to £80,000, she told MPs.
During this time, HMRC added to the strain of the situation, she claimed, as it “systematically sent letters out at the worst possible times” about her case that would be impossible for her to deal with, because its offices are closed over weekends and bank holidays, for example.
“No letter ever arrived on a day other than a Friday. Usually before a bank holiday, or Easter or Christmas. It was always at a time when you could do nothing about it immediately, because you would get home from work and by then it’s too late,” she said.
She also claimed the communications she received were frequently riddled with errors that would take time to correct and address, generating further stress in the process.
“They would send [letters] pre-dated, so by the time they arrived the time limit had already expired. And then you wait for hours to get hold of someone on the phone, [and they tell you to put it in writing], and then you don’t hear anything and you’re in limbo because you don’t know if you have any extra time,” she continued.
“Eventually you’re pushed from pillar to post, and three weeks later you’ll speak to somebody and they’ll say, ‘Oh no, sorry about that [that was sent in error]’. That was routine throughout the whole thing.”
Her experiences were mirrored in the testimony of another contractor, John, who said he received a missive from HMRC, informing him he would be declared bankrupt unless he agreed a settlement on 18 December 2019, but the letter in question did not arrive until two days after the deadline had passed.
Computer Weekly contacted HMRC for a response to the claim the letters it sends out to people are timed to coincide with bank holidays and weekends, and was told: “This bizarre claim is simply not true. It is entirely false to suggest HMRC selects personal dates when it contacts customers.”
Elsewhere during the session, IT contractor Gareth Parris shared his own experience of attempting to reach a settlement with HMRC for his £350,000 loan charge case, only for the process to be plagued with delays and inefficiencies that only let up once he got his local MP involved.
“I engaged with HMRC to settle [and said], ‘Here are all my loans, I want to settle everything’,” he said.
The process took “nine to 10 months” for a response, only for Parris to be hit with the news that interest had been charged during that time on his overall settlement amount.
Computer Weekly put all of the testimonies shared during the meeting to HMRC, and was further told: “We would always encourage people to talk to us as soon as possible about the best way to settle their tax debts, so we can find a mutually agreeable way forward. If anyone is worried, they should speak to us on 03000 599 110.”
Where next on loan charge?
The loan charge policy is currently undergoing a series of revisions, which includes scaling back the number of years HMRC is allowed to pursue contractors for backdated tax payments.
This is in response to the delayed publication of an independent report into the policy, known as the Morse review, which surfaced on 20 December 2019.
The policy initially allowed HMRC to demand payments relating to work contractors did over a 20-year period to 5 April 2019, but the investigative window has now effectively been cut in half on the Morse review’s recommendation. This means anyone who joined a scheme before 9 December 2010 should be out of the policy’s scope.
For how long, though, is subject to debate at the moment, as it has since emerged that HMRC will be given resources to create a new team, tasked with investigating and collecting tax from pre-December 2010 scheme participants.
At the same time, tens of thousands of contractors – many of whom work in IT – remain in scope of the policy because they joined loan schemes after 2010.
For these reasons, the loan charge review – and the government’s response to it – has come in for some fierce criticism from the IT contractor community since its publication, with many contacting Computer Weekly since its publication to complain about its recommendations and findings.
MPs quizzed the contractors present about the impact the review would have on their individual situations, as the Loan Charge APPG gears up to compile its own report on the contents of the Morse review.
In the meantime, there is a judicial review into the policy that is set to play out later this month, the APPG members acknowledged, and the prospect of the policy being subjected to a parliamentary debate in due course.
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