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Thanks to the actions of the All-Party Parliamentary Loan Charge and Taxpayer Fairness Group, the discredited Loan Charge has finally entered the public consciousness. It could prove as controversial as the Post Office Horizon disgrace. So, we look at what's been revealed and why it's caused so many people such misery.

What is the Loan Charge?

The Loan Charge is HMRC's response to disguised remuneration schemes called Loan Schemes. In these schemes, run by non-compliant umbrella companies, contractors are paid via a loan rather than a salary or weekly wage. However, instead of being required to repay the loan, no repayments are taken; therefore, no tax is paid on the amount. 

To counteract this kind of fraudulent behaviour, the Loan Charge was announced in 2016 to ensure that users of these schemes pay their fair share of tax contributions – HMRC estimates that £3.2 billion is lost to the UK exchequer every year in this way. The Charge applied to Loans that hadn't been repaid on 5 April 2019, and HMRC encouraged contractors caught up in these schemes to come forward and settle the outstanding amounts. 

HMRC said that the Loan Charge applied to employers who set up such schemes and that they would be liable for tax repayment. However, it also stated that if those employers no longer exist or are based offshore, then the employees of these companies would be fully liable for the amount they owe, as, according to HMRC, they benefited from the schemes.

Parliamentary debate

On 18 January 2024, the Loan Charge was debated in the House of Commons, led by The Rt Hon Sammy Wilson. He expressed his concern that at least ten people have taken their own lives because of the Loan Charge and that thousands more face unaffordable tax bills, leading to incidents of self-harm as well as divorce and bankruptcy. 

Mr Wilson stated that many people involved with Loan Schemes were victims of misselling and may have been coerced into using such schemes. He also noted that HMRC was demanding repayment of tax from the victims of these schemes, not the perpetrators, contrary to its own guidance – in Section 44 of the Income Tax (Earnings and Pensions) Act 2003 – which explicitly states that agency workers are taxable as employees of umbrella companies and that HMRC should have collected the tax owing from them at the time. 

Mr Wilson went on to say he believes that HMRC overstepped the mark in pursuing contractors who were involved with schemes before 2011 and that it continues to seek payment from people who have already settled. He called for a full independent investigation into the matter, including HMRC's conduct. He said that all parties must cooperate to ensure a fair resolution, calling for a time limit of four years if HMRC had not acted within that timeframe.

The All-Party Parliamentary Loan Charge and Taxpayer Fairness Group 

The All-Party Parliamentary Loan Charge and Taxpayer Fairness Group (Loan Charge APPG) was created to challenge the impact of the Loan Charge legislation and highlight HMRC's conduct in enforcing tax legislation which, it says, has penalised the wrong people. 

The issue has become prominent over recent weeks, with even Carol Vorderman posting about it on 'X' (formerly Twitter). On its website, the LCAPPG says that it believes the Loan Charge should not be applied retrospectively but only from the point of the introduction of the legislation (November 2017) and that HMRC should 'clearly outlaw' Loan Schemes to avoid a repetition of the situation. It also expresses deep concern about the impact of the Loan Charge on those facing it. 

Payme's position

We wholeheartedly agree with the LCAPPG in condemning HMRC's actions in pursuing the victims of fraudulent schemes rather than the companies and/or individuals who ran disguised remuneration schemes. While we agree with HMRC that every individual must pay their fair share of tax to contribute to the country they live in, the Loan Charge has been detrimental and sometimes even harmful towards hard-working contractors. 

Our focus has always been on maximising our contractors' incomes legally and compliantly so they can concentrate on their important work. And we completely condemn those who promote schemes that leave people in debt to HMRC without their knowledge or consent. 

In this matter, and every other one pertaining to matters of tax and National Insurance, we uphold the highest standards possible, as demonstrated by our membership of the Freelancer and Contractor Services Association (FCSA), which is responsible for maintaining standards of 'compliance, transparency and reliability' among its members. 

Our advice to anyone considering contracting through an umbrella company is to ensure that it upholds the highest standards of compliance and is not a disguised remuneration scheme purporting to be a trustworthy company.

Our deepest sympathies go out to everyone adversely affected by the unscrupulous behaviour of certain companies and individuals who knowingly put them in a position of financial and personal risk.

If you've been affected by the Loan Charge or are anxious to avoid a non-compliant umbrella company, you can call us in confidence on 0333 200 0845, email us at [email protected] or fill in the contact form here.