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Joel Crane* and his business partner owe £1.35million to HMRC. Crane started his business, which specialises in graphic design, in 2004. In 2009 he was told that the business was doing well, so he should look into some tax planning. This was where his problems began. From 2009 to 2015 he made use of a scheme that enabled him and his business partner to be paid in the form of loans (commonly called disguised remuneration loans). This minimised the amount of tax Crane had to pay and maximised the amount of money he could use for himself and the business. He checked with his accountant that it was above board. He said it was.

But, as it turns out, it wasn’t.

“You ask all the questions,” Crane says. “’Is this legal?’ ‘Is this normal?’ If somebody had sat down to us and said, ‘This is aggressive tax avoidance and this may come back and bite you on the backside’, then there’s no way we would have got involved in it.”

Though Crane’s case is extreme, around 50,000 people in the UK find themselves in the same perilous position. Through their Loan Charge policy, introduced in 2017, HMRC is cracking down on anyone who received their salary in the form of a loan and thereby avoided paying National Insurance contributions and income tax. As HMRC explains on their website, “Normally, when you’re given a loan, you have to pay it back, often with interest added. But these loans are paid to people in such a way that means it’s unlikely that they’ll ever have to be repaid. In other words, the person receiving money from a loan scheme gets to keep it all.” HMRC says that this is “clearly” a form of tax avoidance.

But the Loan Charge policy is massively controversial. It is so controversial that campaign groups have sprung up to contest its fairness, and on September 11 an independent review into the policy was announced. It is being led by Sir Amyas Morse, former Chief Executive and Comptroller and Auditor General of the National Audit Office, who is being aided by members of HMRC. These staff are all bound by the Civil Service Code to be impartial but for Greg Mulholland, secretariat for the All-Party Parliamentary Loan Charge Group (Loan Charge APPG), this is not good enough. “Considering that Treasury and HMRC officials should be investigated for their part in this,” says Mulholland, “that’s not acceptable.”

The Loan Charge APPG are concerned “that there’s a deliberate attempt to exclude proper scrutiny of the way that HMRC and the Treasury have behaved”. Mulholland, who has heard numerous cases of people’s lives being ruined by the charge, says, “HMRC are a law unto themselves – they are judge, jury and executioner.” He claims that they have no “moral rudder” on this issue and that some of their literature has been tantamount to propaganda.

One option HMRC are desperately pursuing, he says, is that individuals settle. HMRC are said to have agreed around £1billion in settlements thus far. Crane is in the process of settlement talks with HMRC. So is another person I talk to – an IT contractor called Paul Davenport* who had been advised by an experienced contractor to enter the scheme. HMRC has proposed that he pay around £94,000 over a seven-year period. If the Loan Charge kicks in, however, his bill could be between £130,000 and £140,000 and he would have less than seven years to pay. “What they’re saying without saying it,” he says, “is ‘We’re gonna bankrupt you if you don’t pay this’, essentially.”

But the Loan Charge policy is massively controversial. It is so controversial that campaign groups have sprung up to contest its fairness, and on September 11 an independent review into the policy was announced.

Jibran Qureshi of Clear House Accountants says that a while ago they started seeing umbrella companies promising people that they could give them a salary that was 98% tax-free. Clients would ask Clear House if the schemes were – a phrase that crops up again and again – ‘too good to be true’. “We’d always say, stay away from any kind of scheme that can promise you that much money,” says Qureshi. “If it seems too good to be true, it’s actually too good to be true.” The moral ambiguity is the sticking point in this debate: were those who entered into the schemes ever doing anything ethically wrong? If they didn’t realise it may have been ethically wrong, should they be punished so harshly? “There is a fundamental difference of opinion between professional advisers as to whether it was ever ethical or morally right to advise people to avoid tax by converting earnings into non-repayable loans,” writes tax director Nichola Ross Martin on her website.

Though he advised clients not to enter the schemes, Qureshi defends the people who did so, on the grounds that they were using them unknowingly or simply didn’t have a sufficiently sophisticated understanding of tax in order to appreciate the consequences. How could anyone realise they were doing anything wrong if HMRC never questioned their actions at the time, he says. “This has been very unfair to people who’ve been using the schemes for a long time.” Paul Hornby, managing director of accountancy firm JF Hornby, said that many people using the loan schemes thought that they were paying tax when in fact they were paying fees to the companies operating the scheme.

Steve Packham, spokesman for the Loan Charge Action Group, agrees. If there’s a problem with your tax return, he says, HMRC are supposed to query it within a year. The Loan Charge goes back to any outstanding balances on loans made from April 1999 onwards. The problem is so complex, Packham says, that it could “rumble on for years and years and years”. The notion that it is mainly “city boys” who are affected by the Loan Charge is nebulous, he says. The oil and gas section in Scotland has been very hard hit, as have NHS staff and social workers.

For many, the scandal has resulted in mental health problems. Joel Crane tells me that his personal life has been seriously affected. “I moved away from the family home last August,” he says. “I live on my own now and I don’t see anybody, I don’t feel like socialising. It’s just waking up each day, knowing you’ve got absolutely nothing to look forward to…absolutely nothing.”

To begin with, he found solace on Twitter and on a forum populated by people affected by the policy. At the weekend the rate of the tweets and forum alerts would increase, he says; people were “right on the very edge”. His life, he says, has turned into going onto Twitter and abusing MPs for their role in exacerbating the problem. “I’m having nightmares of Twitter icons and people’s faces just melting in my sleep. I wake up and their faces are burning.” He has had to step away from the networks.

For others, it has led to suicide. “There are lots of reports saying that it’s been linked to suicides,” says Mulholland. “It’s not; it’s caused suicides.” The all-party group have heard directly from affected families. In one man’s suicide note, he spoke about the Loan Charge as the reason he ended his life. Crane tells me that it has threatened to overwhelm him. “I’ve been right near the edge,” he says. “There’s been two or three occasions when it’s all become too close, really. You’re just waiting for this thing to tap you on the shoulder and say, ‘Look, you’re finished – it’s your house, it’s your business…’”

In their March 2019 report, HMRC said, “While the government recognises the impact the charge on outstanding DR [disguised remuneration] loan balances will have on some individuals, the government believes that it is right to end this form of tax avoidance for good.” Later in the report, in a section on the toll the charge can take on people’s mental health, HMRC said, “HMRC’s teams are trained to identify and help vulnerable customers and, where appropriate, refer them to organisations such as Samaritans and Mind.”

The results of Morse’s review will be announced in mid-November this year. Most of the people I speak to believe that it will result in at least some change. Its outcome could be seismic and massively complicated. If the Loan Charge is scrapped, those who have already paid HMRC tens of thousands of pounds will believe they are entitled to claim some of it back; if it is not, HMRC will be dealing with thousands of ordinary people who for the rest of their lives will simply be unable to pay back the money they owe.

But campaigners are adamant: the Loan Charge is such a catastrophe that something must be done. “If this issue is properly examined; if there is an evidence-based review that looks at the quite appalling way that HMRC have behaved in countless cases; the belief is that there will be change,” says Mulholland. “You could not just leave the Loan Charge as it is.”

* These names are pseudonyms.


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