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The treatment of tens of thousands of IT contractors who are being pursued by HM Revenue & Customs (HMRC) for life-changing amounts of unpaid tax through the government’s controversial Loan Charge policy is being likened to that of the sub-postmasters caught up in the Post Office Horizon IT scandal.
The comparison occurred during a Business Committee Back Bench debate about the Loan Charge in the House of Commons on Thursday 18 January, which saw a succession of MPs speak out in support of the individuals who have found themselves in-scope of the UK government’s Loan Charge policy.
Introduced during the 2017 Budget, the policy seeks to recoup the £3.4bn in tax HMRC claims more than 50,000 IT contractors, NHS workers, public sector agency staff and individuals in the oil and gas sector avoided paying between 9 December 2010 and 5 April 2019 by enrolling in loan-based remuneration schemes.
These setups would see the affected individuals remunerated for the work they did during this period in the form of non-taxable loans, in-lieu of a conventional salary. These schemes were marketed at the time by reputable and renowned tax advisers and accountants as being safe to use and HMRC-compliant, while some contractors were told they could not work for certain organisations unless they agreed to be paid in loans.
For this reason, the individuals caught in the Loan Charge policy’s scope are often referred to by campaigners as victims of mis-selling, who have now been saddled with six-figure tax bills for participating in schemes that were – at the time – considered permissible and legal.
For the record, HMRC has repeatedly stated that it has never approved of the use of loan-based remuneration schemes, and – in its view – because these loans were never intended to be repaid, they should be reclassified as taxable income.
The situation has won the support of hundreds of MPs from various parties who have banded together as the Loan Charge and Taxpayer Fairness APPG to campaign on behalf of those affected, many of whom are facing financial ruin as a result of the policy. To date, there have also been 10 suicides linked to the Loan Charge, along with 24 cases of serious self-harm.
Many of these MPs participated in the Business Committee Back Bench debate about the Loan Charge, and among them was the APPG co-chair Sammy Wilson, who is a Democratic Unionist Party (DUP) MP for East Antrim, who opened the discussion by drawing parallels between the Loan Charge and the Post Office scandal.
The latter was the subject of an ITV drama that was broadcast in early January 2024, which has brought national attention to the plight of the hundreds of subpostmasters wrongfully convicted at the hands of the Post Office after a faulty IT system led to many of them being accused of false accounting and theft.
“Over the past two weeks, we have been looking at the dramatic fallout of the Horizon scandal at the Post Office and, quite rightly, we have been focusing on what belatedly can be done to repay and to deal with that great injustice,” said Wilson.
“I say to the House – I do not think that I am being overdramatic when I say this – that we are looking at another Horizon scandal, and the parallels are frightening.”
Particularly when comparing how HMRC refers to those in-scope of the Loan Charge to how the Post Office treated those affected by the Horizon IT scandal.
“We’ve had attempts by HMRC to justify what it has been doing. In the past, postmasters and postmistresses who had unblemished records for years were accused of being thieves. We are now being told that the people HMRC is chasing today are – to use its words – ‘serial tax evaders’.”
Likening the Loan Charge to the Post Office scandal
The Post Office Horizon scandal is the story of how hundreds of subpostmasters were wrongly accused, prosecuted and imprisoned for theft and false accounting following the rollout of an electronic point of sale service (EPOSS) system known as Horizon to Post Office branches across the UK in 1999.
The system, developed by IT supplier Fujitsu, was introduced to automate the accounting processes for the subpostmasters working in these branches, but problems with the software led to many of these individuals suffering from unexplained accounting shortfalls that the Post Office blamed them for.
The affected individuals were also, as per their contracts with the Post Office, told they were liable to cover the cost of any shortfalls that Horizon picked up on, which had a ruinous impact on their personal finances, as well as on their mental health and well-being.
For years, the Post Office denied there were any problems with Horizon, resulting in more than 700 subpostmasters being privately prosecuted by the company for theft and false accounting, with some being sent to prison. There have also been several suicides linked to the problems with Horizon.
A Post Office-commissioned interim report, carried out by forensic accountancy company Second Sight, brought to light serious concerns about how Horizon works, and several years later the full report concluded there was a real possibility of miscarriages of justice occurring in the Post Office prosecutions.
A group action and several trials followed and in December 2020 six subpostmasters had their convictions quashed. To date, nearly 100 wrongful subpostmaster convictions have been overturned, and the government has announced plans to push through emergency legislation to overturn the rest of the convictions in one fell swoop.
At the time of writing, no Post Office or Fujitsu executives have been held accountable or punished for their part in what is now known to be the largest miscarriage of justice in British legal history.
Elsewhere in the debate, the comparison between the Loan Charge and the Post Office scandal was raised again by Labour MP Gerald Jones, who remarked on the “striking similarities” between the two situations.
“The way HMRC has dealt with this issue has caused unbelievable hardship, distress and anxiety for large numbers of the people we serve. This sorry saga bears striking similarities to the Post Office/Horizon scandal,” he said.
“Ordinary people, up and down the country, are being asked for unrealistic payments, which is causing huge financial hardship, bankruptcy and worse, such as the risk of losing their home and increased risk of suicide.
“There are real concerns that this is another scandal where the government have ignored the alarm bells and cries for help, so I urge them to revisit it and ensure a fairer and more effective approach.”
And what he means by that is for HMRC to start taking tougher action on the “architects” of the loan-based renumeration schemes, and taking steps to ensure the tax burden in these cases does not fall solely on the shoulders of the individuals involved.
“[It] should be shared by the employers and agencies and, ideally and appropriately, the operators and promoters of the schemes. On that basis, the government should change course and announce a fairer approach [to resolving the Loan Charge].”
A similar view was also shared during the debate by Conservative MP Iain Duncan Smith, who talked about the impact the Loan Charge is having on several of his constituents in Chingford and Wood Green.
“All these people deserve a process that is better, fairer, open and reasonable and that goes after those who originally promoted the schemes. These people were under the impression – as was the case – that the schemes were quite legal,” he said.
“The important point is that HMRC conjured up a retrospective process to deal with this, which is appalling. Historically, that has not been done – you deal with where you were at the beginning – but HMRC felt it had lost a whole load of taxation and did not want to blame itself. What it did was to go after those individuals, threaten them and cajole them.”
Read more about the Loan Charge
- MPs are calling on HMRC to suspend its enforcement of the UK government’s controversial loan charge policy on the basis that there remains no “relevant or justified legal basis” for it.
- A document dump of emails shared between HMRC officials has prompted loan charge campaigners to further question the legal footing of the government’s controversial disguised remuneration policy.
- Thousands of IT contractors are at risk of financial ruin as HMRC pursues them for tax it claims they owe on work they did up to two decades ago and were reimbursed for via loan remuneration schemes. Computer Weekly investigates.
- HMRC must do more to reduce the exposure of contractors to tax avoidance-focused disguised remuneration schemes, the House of Lords Economic Affairs Finance Bill Sub-Committee has concluded.
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