The problem started after the latest Finance Bill introduced a requirement for individuals who received payment via loans in lieu for a salary to pay income tax on these earnings.
HMRC asked for this tax to be paid retrospectively from April, dating back to 1999.
But the taxman said advisers appeared to have misunderstood the wording it used in the settlement packs sent to people and interpreted it as requiring a "deed of release" from the client.
This meant they were telling clients they would not be able to settle with HMRC or could face a future inheritance tax liability unless the creditor released the loan.
It effectively meant clients were paying advisers for a service they did not need.
It also warned taxpayers would not be able to write off the charge.
The taxman’s statement said: "Some advisers are using the wording on IHT in the settlement pack to ask scheme users to pay a fee or a percentage of the loan amount to secure a deed of release or exclusion, or both.
"Any payment will not reduce the amount of earnings or income to be included in the settlement."
HMRC has confirmed that it has changed the wording in its settlement packs to reflect this.
Andrew Robins, tax specialist at RSM, explained: "A deed of release in this context is a written agreement from a lender saying that it will not pursue the debt owed.
"Settling your contractor loan obligations with HMRC does not itself eliminate any loans you owe to the offshore entity set up as part of the original planning.
"If this loan is later written off, an IHT charge can arise at that point."
He added: "For most contractors it makes sense to limit this charge by paying it as part of the HMRC settlement, and HMRC are willing to agree to do this regardless of whether or not the loan is actually extinguished.
"This can be helpful in cases where, for example, the contractor cannot get the offshore entity to cooperate in tidying matters up.
"It appears that some advisers have been telling clients that HMRC will only agree to settle the IHT position if the loan is formally written off / released, and have then demanded payment for arranging this.
"This was never HMRC’s actual position, and the new wording being used by HMRC in their settlement documents is intended to put the position beyond doubt.
"Contractors may still want to obtain confirmation from the lender that it will not call in outstanding loans, but they can take comfort that this is not necessary in order to draw a line under their tax position."
The loan charge will impact about 50,000 people, according to HMRC.
It has attracted considerable political attention since the government decided to put a deadline on paying the tax.
A group of 38 MPs in January passed a motion in Parliament urging the government to consider the impact of the change.
But an HMRC representative said the parliamentary motion changed nothing, although it later decided to allow those with incomes of less than £30,000 extra time to pay.
The MPs take the view that the loan charge is unfair because it is applied retrospectively, while HMRC’s view is because the loans have yet to be repaid, the law is not retrospective.
The taxman disagrees.
david.thorpe@ft.com
