MPs have criticised a HMRC tax crackdown which attempts to claw back money from people who used tax-planning schemes they thought were legal.
As reported by The Independent, the politicians warned that the new measures have caused “widespread anxiety and distrust” and have claimed that the “loan charge” has driven some people to take their own lives.
The government officially introduced the new policy in April, branding the tax schemes used by those affected as “calculated and persistent avoidance”.
Bev Budsworth MD of The Business Debt Advisor, said: “We are seeing an increase in approaches by individuals affected by the loan charge.
“Many of these individuals have other debts as well, cannot pay their debts and need access to formal solutions such as IVAs.
“HMRC have advised they will take a reasonable approach but it remains to be seen if this includes support for solutions such as IVAs.”
What is the loan charge?
Chancellor Philip Hammond introduced the “loan charge” in the 2017 budget.
The loan charge was brought in to recover taxes on income that had effectively been disguised as loans.
The schemes would often route people’s money into a trust which then paid them a salary in the form of a loan which was never designed to be repaid. Because the money was described as a loan in the schemes, it was not subject to income tax or National Insurance contributions.
The schemes were previously considered a legitimate way to reduce income tax, however HMRC has now claimed it never approved these schemes and had always said they did not work.
Around 50,000 people are thought to have used the schemes – many on the advice on their employer or financial adviser – and the crackdown means thousands have now been left with bills for income tax covering up to two decades of their earnings.
All loans made under such schemes since April 1999 that are still outstanding in April 2019 are now taxed as income.
The loan charge will add together all the outstanding loans, over the course of up to 20 years, and tax them as income in one year. Those affected will have to pay by the end of January next year.
Criticism of HMRC
A report by the Treasury Sub-Committee published in July conceded that while they still felt collecting the tax was the correct approach, that the manner in which HMRC had gone about it caused unnecessary stress.
The committee added that HMRC should give vulnerable taxpayers involved in tax disputes better guidance about the law and more support to understand their rights.
David Davis MP claimed earlier this month that four suicides had been linked to the manner in which HMRC has pursued people for unpaid taxes relating to the loan charge.
Mr Davis urged the Treasury at the time to consider people’s mental health when implementing the policy.
There has also been criticism of the fact that the charge can be applied retrospectively, although HMRC automatically allows individuals who earn below £50,000 annually five years to pay the tax that they owe, and seven years for those earning £30,000 a year.
Have you been affected by the loan charge?
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