Her Majesty’s Revenue and Customs (HMRC) has refused to delay a “loan charge” policy for tens of thousands of individuals in the U.K. who are facing a tax charge they have been avoiding for 20 years, according to a report by the Financial Times.
The HMRC said an estimated 50,000 contractors took advantage of loan-based tax dodging maneuvers it refers to as “disguised remuneration.” All of those offenders will have to pay, and the HMRC will tax income on all of the received loans in a single financial year. Many of the alleged offenders are facing six-figure tax bills, and many say they cannot pay and will be forced to declare bankruptcy.
The policy has not been well-received, and has even been linked to two suicides in the country. On Tuesday (March 26), the Treasury said that although the impact is substantial, “it is right to end this form of tax avoidance for good.”
The Treasury also said the charge was introduced to get around potential litigation with people contesting tax issues, and to “draw a final line” on all of the disputed remuneration loans since April 1999 that are still outstanding.
“Claims have been made that some loans were disclosed (to HMRC on tax returns), but compliance action was not taken (by HMRC),” the report said. “In most cases loans were not disclosed, and in other cases disclosure was partial. The decision to introduce the loan charge reflected the fact that individually litigating the hundreds of different and evolving scheme types was not an effective approach to ending this form of avoidance. Genuine loans are repaid; if loans are not repaid, they are income and tax is payable.”
The report also confirmed the policy will not be delayed, a request made by the Loan Charge All-Party Parliamentary Group (APPG), an organization that is operating an inquiry into the policy.
“Contrary to some campaigners’ claims, HMRC will not force anyone to sell their main home to pay their disguised remuneration debts,” the report said. “HMRC carefully considers a customer’s ability to pay on a case-by-case basis, and decisions are based on each individual’s personal circumstances.”