The taxman has a duty to protect “vulnerable” taxpayers who are faced with paying the loan charge and should do more to support them, according to John Mann MP.
Mr Mann is the longest serving member of the Treasury select committee, and also chairs its sub committee, which has examined the loan charge.
The loan charge relates to employees, and their employers, who used disguised remuneration schemes to receive income payments through loans rather than salary and so avoided paying income tax.
With the charge, which was approved by Parliament in the 2017 Finance Bill, HM Revenue & Customs was authorised to pursue individuals and companies that engaged in the practice going back to 1999.
HMRC estimates there are 50,000 taxpayers impacted and the taxman is also pursuing the employers.
Those affected were given an April 2019 deadline to settle or declare their tax bills, and failing that they would be levied the additional loan charge.
Individuals who earn below £50,000 a year have been allowed five years to pay their debt, while those earning below £30,000 have seven years to pay, but they incur interest on those payment plans.
Mr Mann said while allowing payment plans was welcome, he believes HMRC was wrong to have sent out settlement calculations to individuals at short notice.
He also criticised HMRC for delaying telling individuals that a payment plan was possible, which he said had caused "widespread anxiety and distrust."
But HMRC believes it has been open and transparent about the charge and sent out notifications in good time.
In a report from the Treasury sub-committee on the issue, out yesterday (July 31) Mr Mann said: “Setting aside the policy, HMRC’s administrative approach to the payment of large unexpected tax bills has been sensible.
"The delay, however, in clarifying payment terms for those wanting to settle their past use of such schemes has caused widespread anxiety and distrust.
“HMRC’s measures to improve its approach to vulnerable taxpayers are welcome, but it must urgently improve the guidance available for those involved in tax disputes.”
Several apparent suicides have been attributed to the impact of the loan charge, while critics of the policy, including Nicky Morgan MP, who is the outgoing chair of the Treasury select committee, said the charge should not be applied retrospectively.
Ms Morgan was a member of parliament in 2016, and voted for the budget that contained the loan charge.
HMRC’s view is that the loan charge is not retrospective as the loans remain unpaid in the current tax year.
A HMRC representative said: "“HMRC has put in more resources to deal with the large numbers of scheme users who have shown an interest in settling their affairs.
"If a taxpayer approached HMRC with a genuine intention to settle by 5 April 2019 and provided the relevant information, we will make sure the taxpayer isn’t disadvantaged and can still settle on the published terms."