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MPs have urged the City watchdog to explain why HM Revenue & Customs has asked tens of thousands of self-employed workers to consider remortgaging their homes or take out loans to settle huge tax bills.
A cross-party group of MPs objected to letters that HMRC has sent to about 50,000 individuals facing the loan charge — a new law that will tax up to 20 years of income received via “disguised remuneration schemes” in one year.
Letters sent by HMRC and seen by the Financial Times state: “It is expected that you use every means to meet your obligations and pay the tax and interest liabilities that are due. This may include raising a loan or selling other assets.”
Mary Aiston, HMRC director of counter-avoidance, told the Treasury select committee in January: “For some people, [HMRC] may say [to them] you need to take a loan out if you have got equity in your property, if that’s the right answer and people can manage the repayments.”
The All-Party Parliamentary Group on the loan charge has written to Andrew Bailey, chief executive of the Financial Conduct Authority, and Philip Hammond, the chancellor, to query whether the advice given by HMRC was a potential “breach of FCA regulations”.
As political pressure mounts, Nicky Morgan, Conservative MP and chair of the Treasury select committee, has written separately to HMRC and Mel Stride, financial secretary to the Treasury, questioning how they are able to justify pursuing debts going back 20 years.
Ms Morgan also questioned why contractors who had declared the use of loan schemes on their tax returns, yet had heard nothing back from HMRC, were being caught by the new charge. “[Such individuals] could have reasonably believed that their tax affairs were in order,” she wrote.
Sir Ed Davey, chair of the APPG, said: “The FCA has stated that ‘debt advice and the provision of personal loans or lending is a regulated activity’ so we have written to [them] asking if HMRC’s advice is in breach of their rules, as HMRC are not on the FCA list of approved organisations to offer debt advice.”
He added that HMRC’s advice was “clearly inappropriate”, as many people facing the loan charge would struggle to repay debts of this size as they were self-employed, retired or nearing retirement.
“[Several] reputable lenders will not lend the amounts of money to pay the huge demands many people are facing,” Sir Ed added. As a result, he warned there was also “a real danger” that people would turn to less reputable lenders charging punitive rates of interest.
One individual facing a £100,000 bill who wished to remain anonymous said he called his mortgage provider “in desperation” to ask if he could remortgage, on the back of Ms Aiston’s statement.
“[The lender] said they absolutely could not do that,” he said. “Not only was that devastating to hear but it also made my mortgage company think that I am in real trouble, which doesn’t help. I’m already in a fragile state.”
Another individual facing similar difficulties said he had contacted six high street banks to ask whether he could obtain a personal loan to meet his tax bill. Only one — HSBC — said they would be willing to consider this.
HMRC said: “HMRC does not give personal financial advice. However, where taxpayers don’t have the necessary liquidity, but do have assets that could be used to raise funds to pay what is legally owed, this is an option that should be considered.”
An FCA spokesperson said: “We have received the letter and will respond.”
FT Money called some of the UK’s biggest banks and building societies to find out how easy it would be to remortgage or take out a personal loan to pay a large tax bill.
The majority of lenders said they would not allow individuals to take out personal loans of £50,000 or more to pay a tax bill. Of the 10 surveyed, only three — HSBC, Clydesdale Bank and Yorkshire Bank — said they would consider such a request.
The same three lenders, plus Santander, Tesco Bank and TSB, said they would consider requests to remortgage in order to pay a tax bill. However, the majority of the lenders surveyed by FT Money said they would not. These included Aldermore, Barclays, Coventry Building Society, Halifax, Lloyds, Nationwide, Royal Bank of Scotland, Virgin Money and Yorkshire Building Society.
A Treasury spokesperson said: “[Disguised remuneration] schemes were designed to allow individuals to avoid paying income tax and national insurance on their earnings. The loan charge means people paying themselves through loans, often from offshore trusts, will now have to contribute their fair share to pay for our public services. We’re producing a report about the issue of time limits for tax inquiries and disguised remuneration schemes, which will be published this month.”
Ross Thomson, Scottish Conservative MP and vice-chair of the APPG, said the loan charge “overrides existing statutory taxpayer protections, allowing HMRC to seek tax for ‘closed years’ when they have no legal right to do so. This is quite manifestly retrospective and it is simply ludicrous to present it as anything else.”
On Wednesday, MPs heard emotional testimony from the family of a contractor who had committed suicide because of the tax bills he faced as a result of the loan charge.
MPs also heard evidence from a social worker, locum doctor and government contractor who had joined the loan schemes on the advice of accountants and recruitment agencies.
Ron Macey, a project engineer in the gas industry, told the MPs that HMRC needed to give more heed to what people could afford to pay.
“If we have got to pay, we’ve got to pay,” he said. “But I’m faced with losing my home and my family, or having no retirement. If I lose my home and my family what’s the incentive for me to work any more? You’ve got professional people here — doctors, nurses, financial people — if they go bankrupt they can never work in their professions again. What is the point of making them destitute, of ruining their careers and ruining the benefit to the country?”
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