Third of people affected by 'loan charge' could have debts wiped away

Almost a third of people affected by the "loan charge" could have their debts wiped away as the government attempts to draw a line under a tax scandal that has been linked to multiple suicides.

In a report published alongside the budget, the government said it would go beyond the recommendations outlined in an independent report, which was also published today.

As a result, most people will see their bills cut in half, at a cost of £365m over the next five years to the public purse.

Labour promised a review into the controversial tax policy, which was implemented by the Conservatives in 2019, to try to recover tax revenue from individuals whose employers did not pay it.

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Many of those affected were agency workers - cleaners or care workers - who were paid via umbrella companies, a poorly regulated industry rife with tax-avoidance schemes. Others were contractors who engaged umbrellas because it was less complicated than setting up as a limited company.

In his 2016 budget, then chancellor, George Osborne, announced new legislation to try and recover the missing revenue, not from the umbrella companies but from the individuals.

Campaigners have long described the policy as grossly unfair, arguing that it attacks victims of mis-selling.

Link to at least 10 suicides

The policy has caused widespread financial despair and has been linked to 10 suicides. HMRC was made aware of a possible 11th suicide as the report was being finalised.

The review, which was led by former HM Revenue & Customs inspector Ray McCann, recommended reducing liabilities by removing late payment interest penalties (thought to be worth about 25% of all liabilities).

The original policy looked at all the money earned over several years and made it taxable in one year, meaning individuals saw larger chunks of their income fall into higher tax bands.

The review suggested unstacking those years. It will also reduce the income under consideration by 10% each year to take into account the fees that the scheme operators deducted. That will be tapered to 5% above £50,000 and stop altogether after £150,000.

The government accepted the findings, which will be made law through a finance bill. It will go beyond that by wiping £5,000 off each bill.

It means lower earners will benefit disproportionately, with some seeing their bills entirely wiped away, but those with the highest debt burdens could still be facing six-figure bills.

The Treasury said the total package would cost the public purse £365m over the next five years, but the Office for Budget Responsibility said it was still highly uncertain that all the money would be collected, with many of those affected now approaching or having retired.

Calls for widening the scope

The review was aimed at supporting people to reach a settlement, but it did not challenge the fundamental fairness of the policy.

Campaigners repeatedly called for the scope to be widened, so that it examined the role of scheme developers, umbrella companies, recruitment agencies, accountants and tax advisers.

They also called for the tax office to give individuals the same treatment as large corporations after it emerged that HMRC settled at just 15% with some large banks that used similar tax avoidance arrangements.

Steve Packham, from the Loan Charge Action Group, said today: "The McCann Review has only reviewed settlement terms of those facing the Loan Charge and as expected has therefore recommended some concessions.

"This is wholly different from a genuine review of the Loan Charge Scandal and being conducted by a former Assistant Director of HMRC, was clearly not independent.

"The concessions being offered are nowhere near the settlement deals offered to the big banks for use of similar arrangements.

"How can it be fair to give multi-billion-pound banks settlements of 10-15% whilst still demanding several times that from victims of mis-selling?"

Estimates vary, but around 70,000 people are thought to have been affected by the loan charge, with 25,000 having settled.

The government will not be reviewing the cases it has already closed. "The review also excludes those who were pushed to settle under duress from HMRC, which means they will have ended up paying more than those who didn't, which is grossly unfair," Mr Packham said.

What was the loan charge?

The "loan charge" was introduced in 2019 in an attempt to recover tax revenue that had been lost through disguised remuneration schemes.

Many of these schemes paid workers through loans that were never intended to be paid back to try to circumvent income tax and national insurance.

They started proliferating across the economy at the turn of the century, when the Labour government introduced new rules, known as IR35, that made it more difficult for contractors to operate as limited companies.

While some of those who engaged in loan schemes entered into them with the explicit intent to minimise their tax bills, a large number were simply trying to do the right thing.

Many contractors were advised by accountants to avoid setting up limited companies and to sign up to umbrella companies instead. These would manage their payments and limit the risk of falling foul of IR35 rules.

However, the umbrella market was poorly regulated and a wild west of rogue operators, many of whom were, in fact, offshore tax avoidance schemes.

Agency workers, including nurses, cleaners and council workers, were also affected. In many cases, they were told by recruitment agencies that they would be paid by an umbrella company, and some were given no other option.

The NHS, local authorities and other public sector organisations all engaged workers who were part of these schemes.

Back in 2021, HMRC even admitted that it had at least 15 contractors on its own books who were part of "disguised remuneration schemes" between 2016 and 2020.

Sky News spoke to workers who saw deductions on their payslips that they presumed were tax deductions, but these were fees pocketed by the promoters.

HMRC and the Treasury slowly became alert to the scale of the missing tax revenue and sought to recoup it, not from the companies but from the individuals.

These schemes were deemed to be disguised remuneration and, in his 2016 budget, former chancellor George Osborne brought in the Loan Charge.

The law was passed by parliament and made individuals liable for the tax that the employers should have paid. The schemes took different forms, but in many of the cases, the umbrella company would have been the legal employer of the workers.

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It is a campaign that has driven people to the brink of bankruptcy, devastated families and has been linked to 10, possibly 11, suicides. Another 14 people have attempted to take their own lives.

Labour promised a new independent review of the loan charge before the general election last year. A previous report by Lord Amyas Morse in 2019 was criticised for involving officials from the Treasury and HMRC, organisations that were architects of the loan charge.

Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK.

Alternatively, you can call Mind's support line on 0300 102 1234, or NHS on 111.

(c) Sky News 2025: Third of people affected by 'loan charge' could have debts wiped away