No end to the Loan Charge Scandal: Restrictions to the McCann Review mean that thousands of cases will remain unresolved
The Loan Charge Action Group (LCAG) has warned that the Government’s implementation of the McCann Review will fail to resolve the Loan Charge Scandal, leaving thousands of people unable to settle, prolonging serious mental-health harm and storing up years of further cost and controversy for HMRC and the Treasury.
The Loan Charge Action Group has written to the Chancellor of the Exchequer laying out why the McCann Review, which reviewed settlement terms and not the Loan Charge itself, will not and cannot bring an end to the Loan Charge Scandal. Unfair and unnecessary exclusions and restrictions mean that many existing cases won’t be resolved – meaning the nightmare carries on for thousands of families, as well as continuing to be an administrative mess and costly burden for HMRC.
LCAG has studied the recommendations and spoken to both those affected and advisers and it’s clear that the nightmare will continue for large numbers of people. Following detailed analysis of the McCann Review, the Government’s response and consultation with affected taxpayers, it is clear that the review will not deliver on the Government’s own promise to “bring the matter to a close”.
There has been widespread reporting suggesting all bills will be cut by 50%, however this is not the case, due to the imposition of a £70,000 limit on settlement reductions by the Government, something not recommended by former HMRC Assistant Director Ray McCann. This unnecessary imposition will put any possibility of settlement out of the reach of many people with larger Loan Charge demands, which will be well above 50% – in stark contrast to the 10-15% settlement deal HMRC gave to multibillion pound banks for uses of similar schemes. This is despite Ministers – and the McCann Review itself – acknowledging that those caught up in the Loan Charge nightmare are victims of mis-selling, by Chartered Accountants, recruitment agencies and umbrella companies, as well as scheme promoters.
HMRC is already seeking to change how the review recommendations will be implemented in practice, exactly as it did with the previous Morse Review. LCAG has been informed by advisers dealing directly with HMRC on behalf of Loan Charge victims that HMRC is already seeking to fundamentally alter the McCann Review recommendation by proposing to add promoter fees to the overall liabilities. This will substantially increase settlement demands and again, will mean any possibility of settlement becomes impossible for many people.
In addition, with the McCann Review having excluded pre-December 2010 and post April 2019 cases, there are people who cannot take part in the settlement. There are a considerable number of people who have both pre-December 2010 and post 2010 years, who would have to settle all their pre 2010 demands, on more punitive terms, before being allowed to access the McCann Review settlement opportunity. This, again, will simply make it impossible for many of this group to afford to settle.
Why the review will fail to resolve the Loan Charge Scandal
LCAG identified eight fundamental flaws that mean the Loan Charge Scandal will continue:
- Thousands excluded from the outset
Large groups remain outside the settlement, including:
- People with pre-December 2010 cases still being pursued despite the Morse Review;
- Post-2019 workers, including NHS and social care staff, mis-sold schemes following IR35 reforms;
- People in identical disguised remuneration schemes that fall just outside Loan Charge drafting;
- Those who settled early or paid under APNs/FNs, with no mechanism for refunds or recalculation.
- Mis-selling acknowledged — but victims still held solely liable
While the review recognises and acknowledges widespread industrial-scale mis-selling, it makes no recommendation to pursue promoters, accountants or agencies, leaving all liability with victims. This is despite Ministers, including the Chancellor, previously stating that it was wrong to pursue the victims of mis-selling, not the perpetrators.
- A £70,000 cap that blocks settlement
The Government’s £70,000 cap on write-offs — not proposed by the McCann Review — is arbitrary, unfair and ignores income, age and affordability. Many people with higher liabilities will simply not be able to pay and the consequences would therefore be bankruptcy and loss of homes and pensions.
As predicted by both LCAG and the APPG, the review has followed through with the false assumption that those with the smallest liabilities are those in most need of settlement reduction.
Many of those with higher liabilities have them because they used schemes, as advised by Chartered accountants and others, for years, not because they had huge incomes. In addition, many with large liabilities are now not earning much, if anything, due to loss of work from the IR35 off payroll rules roll-out and received no support from Government during the Covid pandemic. Others have lost jobs and whole careers directly due to the mental and physical impact of facing the Loan Charge and unaffordable demands from HMRC.
- Age and ability to pay ignored
Nearly half of those affected are now aged 60 or over, yet assumptions about “current income” appear wildly unrealistic for pensioners and those nearing retirement.
- Interest makes settlement impossible
Ongoing interest means a £100,000 liability requires:
- £2,140 per month over five years, or
- £1,300 per month over ten years.
For someone earning £37,000, this absorbs over half of take-home pay, making settlement not viable.
- Household income wrongly included
HMRC is factoring in non-liable partners’ income — a practice which is legally questionable and morally unacceptable.
- HMRC watering down promoter fee rules
Despite the review stating tax should apply only to loan amounts, LCAG has been informed that HMRC intends to add promoter fees, inflating liabilities in direct contradiction of the review.
- Those who settled are unfairly excluded and therefore penalised
Those who settled under threat of the Loan Charge are now being denied equivalent terms, a situation Ray McCann himself acknowledged was unfair. People did exactly what Ministers and HMRC told them to do — settle — and are now being punished for it, which is a fundamental breach of natural justice.
LCAG calls for urgent changes to the Finance Bill
As a result of these flaws and failings, to have any chance of resolving the scandal, LCAG urges the Government to:
- Extend settlement terms to all affected, including pre-2010 cases, post-2019 workers and those who have settled. Better still, Respect the spirit of the Morse Review and finally close pre-2010 cases.
- Remove the £70,000 settlement reduction cap and base settlements on real-world affordability, age and income.
- Legislate to prevent HMRC adding promoter fees.
All of this flies in the face of the purported reason that the Treasury only commissioned a very limited six-month review into settlement terms, as opposed to a genuine review of the Loan Charge Scandal, which was to resolve cases and to allow those who have been so badly affected to get their lives back. In responses to Parliamentary questions, Ministers have stated:
“The Government does not think it is right for people affected by the Loan Charge to have to wait years for any progress on bringing this matter to a close for them and has therefore ensured that the review has a focused remit, allowing it to report by this summer.”
Due to the issues identified and now raised with the Chancellor – many cases will NOT be brought to a close – and the nightmare will continue for many people.
There will also continue to be a serious suicide risk, if HMRC issue completely unaffordable demands to people, which will happen if the Government proceeds with its £70,000 cap (and if it allows HMRC to add promoters’ fees onto total liabilities). An 11th loan charge suicide was confirmed in the McCann review report. Despite this, the Government has not seen fit to propose a genuinely fair resolution, that would actually enable many people to end the Loan Charge nightmare.
There is still a clear need for a full independent inquiry into the whole Loan Charge Scandal, including the profound failures of the whole policy, as well as the conduct of HMRC. The McCann Review was only focused on settlement terms, meaning that the whole fiasco has not been fully and properly scrutinized and HMRC and Government Ministers and officials have not been held to account for the catastrophic failure of a policy.
Steve Packham from the Loan Charge Action Group said:
“The McCann Review was presented by Government as a way to end the Loan Charge Scandal. In reality, it will not allow thousands of people to settle, meaning that the whole scandal will drag on for years to come.
It is clear from analysing numerous cases and speaking to expert advisers that the Government propaganda around the potential review outcome bears no relation to the reality of the McCann Review for many people. Raising false hope among already vulnerable people is dangerous. When thousands realise they still have no route to settlement, the consequences for mental health will be severe. With an eleventh Loan Charge suicide confirmed, the risk is very real and alas this is simply not being addressed in this new ‘settlement opportunity’ which still means life-ruining unpayable bills for many people.
It was always wrong to exclude many victims of mis-selling from the review and by doing so, the Government is setting up to fail. Unless these changes are made, the McCann Review will join the Morse Review as another failed attempt to draw a line under the Loan Charge. Responsibility for the ongoing scandal now rests squarely with the current Government and we urge Ministers to wake up and make changes that would at least allow some people to have a chance of ending this nightmare.
It is also scandalous that those who settled with HMRC, many under considerable duress and all in the belief that they would otherwise face far higher demands, are not to be given the same terms put forward by the McCann Review. People did exactly what Ministers and HMRC told them to do — settle — and are now being punished for it. That is a fundamental breach of natural justice.
“We urge the Government to engage with us and with advisers to look at the reality of the McCann Review recommendations on cases and make changes to their proposals in the Finance Bill as a result. If they do not do so, if they continue the ten-year strategy of ignoring reality and peddling propaganda, then the Loan Charge Scandal will alas continue for some years to come, with all the risks that entails”.
ENDS