British Members of Parliament investigating a new loan charge, which is set to come into force on Friday and will tax at least 50,000 contractors, have described it an attempt by HM Revenue & Customs to cover up its past failures. The MPs have accused concerned ministers and officials of breaching ministerial codes over the tax policy. According to the policy, contractors will be taxed in a single financial year for using loan-based avoidance schemes on income received up to 20 years ago. More than 100 MPs, members of the Loan Charge All-Party Parliamentary Group, demanded an immediate six-month halt to the policy. The parliamentary group also called for an independent review of the policy to judge whether the policy should be amended or scrapped.
Under the arrangement, loan-based remuneration scheme - otherwise known as ‘disguised remuneration' schemes – were used to avoid paying income tax. People who used these schemes would work for an umbrella company and had their salary paid in loans. Instead, workers in such schemes were loaned money in such a way that the debt was unlikely ever to be repaid. No tax was paid on the loan and was, allegedly, used to avoid paying tax. Experts estimate that in the late 1990s and 2000s, IT contractors and other freelance workers in the UK entered into these arrangements. However, in the 2016 budget, chancellor George Osborne announced that such loans would be treated as income in the 2018-19 tax year. HMRC claims the average amount of tax avoided was £20,000 per person, per year and expects to raise £3.2bn from the loan charge by the 2020-21 tax year.
A select committee-style inquiry has been conducted by the group since February, and a report was published on Wednesday. The MPs accused HMRC of failing to act timely to address the growth of such schemes and said HMRC was disproportionately going after the individual taxpayers and not the umbrella companies. They also allege that Treasury and HMRC had evaded proper scrutiny and dodged answering questions, including over the complaint that contractors working for HMRC and other government departments had also used such schemes. The group accused HMRC officials of breaching the civil service code as a "lack of integrity" was shown by the department.
Mel Stride, the minister responsible for HMRC, was also censured by the MPs and was accused of breaching the ministerial code. Last month, Mr Stride refuted the claims that the charge was unfair, describing the claim as "misconceptions", and defended HMRC, which was "not out to bankrupt people". In a report, which will be sent the report on Thursday, HMRC and the Treasury were accused of failing to evaluate the social, economic and health damage the charge is causing. It must be noted that there has been at least one suicide due to the charge, while some people fear they will be bankrupted or lose their homes. The government has not to set up a 24-hour counselling helpline yet, and an estimate of the number of bankruptcies that would result has not been completed yet.
People campaigning against the law argue that the retrospective nature of the crackdown is unfair and are asking for the law to be changed so that the charge only applies from the point at which the legislation was passed. Many affected people are now retired or approaching retirement and would have to face a hard time repaying the charge. Campaigners also point to the crucial distinction between avoidance and evasion.
On Thursday, a Commons backbench will debate whether to delay the loan charge for six months.
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