UK Politics

Loan charge: MPs in 'fraudsters' row with HMRC

Tax and calculator graphic Image copyright Getty Images

HM Revenue and Customs (HMRC) is engaged in a bitter war of words with MPs over the so-called "loan charge".

The charge - brought in last year to close a tax loophole - has landed thousands of freelancers with large, unexpected bills dating back 20 years.

The all-party loan charge group has accused HMRC of suggesting those who have to pay the charge are fraudsters.

HMRC's chief executive Jim Harra insists a press release did not say that and is demanding a retraction.

But the all-party group says it "stands by" its criticism.

The group's chairman, acting Lib Dem leader Sir Ed Davey, said the loan charge was a "bad policy" that had caused misery to many people and was "very bad for the economy".

Family breakdown

He told the BBC a number of his constituents had been victims of "both this disgraceful government policy and the way it has been implemented by HMRC".

The loan charge is aimed at tackling a type of tax avoidance HMRC calls "disguised remuneration".

Image copyright UKParliament/JessicaTaylor
Image caption Sir Ed Davey is a leading critic of the loan charge

In 1999, the then Labour government introduced tax law called IR35, which sought to class many self-employed freelance workers as employers, meaning they would have to pay National Insurance.

Many signed up to schemes, promoted by lawyers and accountants, allowing them to legally avoid paying National Insurance. This usually involved the freelancers paying money to umbrella companies, who loaned it back to them.

The government has closed this loophole and is now demanding retrospective payment of large sums from the freelancers.

The Loan Charge Action Group says someone earning more than £50,000 a year could face a bill for more than £500,000, and even people on more modest incomes face charges in excess of £10,000.

It says this has led to depression, family breakdown and, in a few cases, suicide.

'Dangerous'

The campaigners have accused HMRC of victimising freelancers who are subject to the loan charge and trying to portray them as criminals or fraudsters, when they are, in fact, victims of fraud themselves.

The latest row centres around a press release issued by HMRC last week, which announced the arrest of five people suspected of promoting schemes to get round paying the loan charge.

The release included a warning to "think extremely carefully" before entering into "any scheme that claims to significantly lower your tax bill" and that if a "something looks too good to be true, then it almost certainly is".

It said HMRC wanted to protect people from schemes that, at worst, could see them "being involved in fraud".

In a letter to Mr Harra, the all-party group said that using this kind of language created the impression that loan fraud victims were criminals.

The group also claimed that the press release "gives the general impression" that the arrests had been for selling loan schemes, which was not the case.

"The conflation of these things may assist HMRC covering up their complete lack of action against promoters of loan schemes, but is unhelpful and also dangerous," it said.

'Honesty'

Mr Harra wrote to Sir Ed Davey to demand the all-party group withdraw its allegations and publish a correction on its website.

"The press release does not say, or imply, that users of disguised remuneration schemes have committed fraud," wrote Mr Harra.

But the all-party group, co-chaired by Labour's Ruth Cadbury and Conservative MP Sir Mike Penning, is standing by its allegations.

In a Twitter message, it said HMRC had "misrepresented arrests as being action against promotion of schemes now subject to the #LoanCharge, when they have not been".

The BBC understands HMRC took the unusual step of releasing information about arrests because it wanted to be seen to be taking action, following criticism about poor communication, in a report last year.

But the organisation insists it was clear in its release that the arrests were related to schemes to get round the loan charge - not people responsible for selling schemes to avoid the tax, or the people who had used these schemes

Glyn Fullelove, president of the Chartered Institution of Taxation, tweeted that he could not see how HMRC could be accused of "conflation".