A top accountant has slammed the government’s loan charge “crusade” as “wrong on every level” as he urged anyone being pursued over the payments to seek advice.
Paul Hornby, managing director of accountancy firm JF Hornby, said HM Revenue and Customs’ controversial action over the charge had left low-paid workers lumped with six-figure tax bills and that the government’s review had fallen short of what was needed.
The loan charge relates to people who worked and received their remuneration through loans, which are not taxable, rather than a salary, which is.
The loans were never intended to be repaid resulting in the tax office treating them as tax avoidance, although campaigners maintain the loans were legal.
In the 2016 Budget the government confirmed it intended to ban the practice and have the tax repaid, and those affected by the policy were given an April 2019 deadline to settle or declare their tax bills and failing that would be levied the additional loan charge.
The process was above board for the years it was used until HMRC clamped down following the bankruptcy of Rangers FC, which had been operating a similar scheme.
This led to widespread action and the process was outlawed, but HMRC chiefs also retrospectively applied the law meaning they pursued people who used a loan payment scheme when it was legal.
Mr Hornby said: “Lives are being affected in the most terrible way because action is being taken against people who were acting perfectly lawfully at the time, but are now being punished by retrospective action.
“Nurses, teachers and public sector workers along with many people who worked as freelancers are finding themselves in unimaginable situations.
“It is affecting people who should be looking ahead to retirement, but instead are wondering how they will ever manage to pay back what the taxman claims is his.
“Anyone affected should take sound advice as soon as possible and should not rush or be forced into making any decisions.”
Those who earn below £50,000 a year have been allowed five years to repay their debt, while those earning below £30,000 have seven years to pay, but they incur interest on those payment plans.
Earlier this month prime minister Boris Johnson backed a ‘thorough’ review of the loan charge following mounting pressure from MPs and campaigners, a promise which last week came to fruition when chancellor Sajid Javid commissioned a review to examine if the legislation was fair.
While the loan charge has been labelled as a tax avoidance scheme, Mr Hornby said many of those paid in this way considered the deductions to be tax payments when in fact, they were processing fees.
Others simply followed the advice they were given at the time, he said.
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