The loan charge changed my life – but not for the better. After a period out of work I was offered a contract on a reasonable day rate but with no holiday pay, sick pay, pension and no job security. I thought I could be self-employed but was told that because of IR35 employment regulations I would have to find an alternative arrangement.
I was offered two choices. One was to set myself up as a limited company, and the second was via a third party employer. For convenience, I chose the second option and was put in contact with an organisation which incorporated loan scheme arrangements. I was told that the scheme was compliant with tax law having been set up by experienced tax professionals with input from a leading barrister.
HMRC claims pre-loan charge
I had three incomplete tax years in schemes operated by the same organisation. During the third and last period (tax year 2011/12), I was offered permanent employment as a PAYE employee by the client to whom I was providing services. I readily accepted this even though it was at a reduced salary.
During the years following my involvement in loan scheme employment, HMRC declared such schemes were illegal but that they would not pursue their claims through a court of law. I was issued assessments and demands for income tax on the Loans and Accelerated Payment Notices (APN) . I was advised by the organisation operating the schemes not to pay as the schemes were legal during my tenure.
Introduction of the loan charge
In 2017 MPs approved the introduction of the loan charge legislation, making loan-based employment schemes subject to income tax and National Insurance (NI). The legislation was to become effective from April 2019. However, what MPs did not realise was that they had unwittingly approved the retrospective backdating of the loan charge for the 20 years from 1999, and transferred the liability for collecting income tax and NI from the employer, as is normal, to the employee.
It is estimated that as many as 60,000 people, including myself, had loans-based employment going back to 1999 and that they were now deemed taxable by the retrospective application of the loan charge.
I was advised that settlement of the underlying tax, assessed on the loans prior to the introduction of the loan charge in April 2019, would be less than the amount assessed under the loan charge.
Impact of the loan charge
The introduction of the loan charge left me devastated. I had been receiving endless letters in brown envelopes, which I came to dread, for many years.
I was, until recently, unaware that HMRC had set up a team to put pressure on tax payers by adopting ‘nudge techniques’ to pressurise individuals. These techniques included endless demands, with appropriately-worded letters often arriving to coincide with birthdays and other events, telephone calls and visits to people’s homes. I have been subject to all three.
The net result for me personally has been the end of my 40-year marriage, leading to divorce, the sale of our family home and stress-related illnesses including raised blood pressure and irritable bowel syndrome. Suicide was only ever a fleeting passing thought that I blocked out, but unfortunately at least ten families have lost a loved one who took their own life as a direct result of the loan charge.
Mental health downturn
Whilst hiding things from colleagues and friends, my family, and most importantly my wife, witnessed the decline in my mental wellbeing. The nights with little or no sleep were taking their toll. I became depressed, often in a foul mood, snapping at the slightest annoyance. After many years of taking an increasing dosage of anti-depressants, I started hallucinating. Searching for lights in a totally darkened room. The weirdest of all was a perfect depiction of Tower Bridge in various greys on the ceiling as I lay in bed. Why Tower Bridge? Who knows?
I weaned myself off the anti-depressants and increased my dependence on alcohol instead. I then developed outbreaks of rosacea brought on by stress. I was covering the worst blister-like spots on my face with foundation makeup, conscious all the time that work colleagues or clients could tell.
After retiring from work I would often take to my bed for days on end with little or no purpose in life; I was becoming intolerable. Whilst it was a shock at the time, it was inevitable when my wife left me. Who could blame her? We’re good friends now though.
Settlement, or so I thought …
I decided to settle the income tax and NI assessed against loans early in 2019 (prior to the loan charge introduction) from the proceeds of property sale. Settlement included interest penalties for late payment of the due tax and NI. I naively thought settlement meant settlement.
First HMRC came back for inheritance tax based on the value of the loans. I argued, unsuccessfully, that this represented double taxation on the same money, and either they were income or loans but not both. Secondly, they came back for APN late payment penalties. I have argued that I settled the underlying income tax and NI assessed against the loans and not the APNs, but to no avail. I have to date, paid neither.
HMRC harassment continues to this day: dreaded brown envelopes arriving, phone calls, knocks at my door and always my health suffers.
The Morse Review
Parliament agreed that an independent review of the application of the loan charge should be undertaken, and Sir Amyas Morse was appointed as chair. However, it has since been evidenced that the review was far from independent, tainted by a heavy touch from HMRC, who, as instructed by the Information Commissioner, are still to provide a copy of a damning early Morse draft.
MPs approved the Morse Review recommendation that the retrospective backdating of the loan charge should be reduced to ten years, effective from December 2009.
Following publication of the Morse Review changes, I formally applied to HMRC for a refund of the pre-December 2009 settlement monies I had paid. My application was refused on the grounds that HMRC had opened an enquiry before settlement. I duly appealed but to no avail. HMRC’s decision is hardly within the spirit of the law change, and not in line with the intention of MPs approving the change.
HMRC are now issuing 684 notices to people with open tax enquiries pre-December 2009. This effectively transfers the tax obligation from the employer to employee, thus negating the requirement for the loan charge to be applied to collect income tax and NI.
And so it continues
I have dealt with these issues with the support of my family and friends, and I have a new partner now who is very understanding and helps me cope on a daily basis. However, the demands continue, including the arrival of the dreaded brown envelopes, and a recent phone call. I was out and missed the last knock on my door.
