The Impact of the 2019 Loan Charge

I am a former HMRC Inspector and in my current capacity I work as a Partner in the independent advisory firm, Dow Schofield Watts. I help clients who are the subject of action by the tax authorities or are facing financial difficulties due to payment demands. I currently have thousands of clients who are trying to liaise with HMRC to settle their affairs in preparation for the impending 2019 Loan Charge.
My role over the past few months has been the most challenging I have ever faced. Not from a tax point of view as I’ve been doing that for 20 years. It has been challenging as I’ve had to listen to thousands of clients talk about how their lives have been devastated. This is the most incredibly soul destroying and challenging work that I’ve ever faced and the only reason for that is HMRC’s complete and utter refusal to consider that, on this one topic, they have made a huge mistake.
Below are three recent and real examples of my experience of dealing with HMRC. For confidentiality I’m not going to name the clients but all the following are real examples. They are not extreme cases, they are the norm.

Client 1

Mr Smith is 66 years old. He lives alone as he finalised a divorce a few years ago. He’d managed to build up a reasonable nest egg (approximately 200k I believe) for his retirement which began last month. He was looking forward to relaxing after 40+ years of work. On the second day of his retirement he woke up, made himself a brew and checked his emails. There was an email from his old employer, an umbrella scheme. He opened it to discover that due to the retrospective nature of the loan charge he owed HMRC >£300K. His life’s work and savings are now all about to be taken away. He is unlikely to be able to get more work at his age.
This is a man who served in the Falklands for his country and as far as he’s concerned his country has responded by ruining his life. I found it difficult to disagree with his belief that he deserves better.

Client 2

This client is a lady, probably in her late 30s if I was to guess. She has a disabled child but manages to juggle her career and the child’s care with a highly impressive level of organisation. She is currently trying to go through the Contractor Loan settlement process but, as is the case for many of my clients, the inspector in charge of the case is ignoring this fact and currently threatening to charge her a penalty for not responding to his latest letter. The letter was a standard SCH36 which was a set of questions originally devised to help the inspector evidence that the loans she received were actually taxable income. As the lady has herself stated in writing “ok I’ll just accept it’s income” I would have hoped that the inspector would have recognised that completing the form had become unnecessary. However, no such luck, he still wants her to answer questions about her past employment, he wants her to send in bank statements and he wants her to explain about the contract she was under. Again I state, she has already put in writing she is happy to accept the entire loans were taxable. There is no reason for this form to be completed now. HMRC are getting the absolute maximum amount of tax that is possibly due.
The reason I mention this is that this lady broke down in tears to me last week when I informed her that the Inspector was insisting on this ridiculous process. I asked her what was wrong as, whilst this is indeed an Inspector wasting a taxpayer’s time, it was still a surprising response for my client to cry. It turns out that the lady had the previous night been trying to work out how much her liability would be and she had (correctly) calculated it at £200K. She has no savings as she pays all disposable income on care for her disabled child. Her current salary is £30K per year. She’s clearly going to be bankrupt now and that will mean she loses her job as it’s in finance. She can’t therefore care for her son in the manner required. This is again due to the retrospective nature of the loan charge. The very same loan charge which HMRC state “is not expected to have a material impact on family formation”. It gets worse, the lady informed me that she had seriously considered killing herself as well. I had to seek urgent help for her and this is ongoing.
The inspector, by the way, still wants his unnecessary form filling in. I’ve informed the lady that my firm will pick up the bill for any penalty and we will work free of charge on the appeal including heading to Tribunal where we firmly believe the Judge will agree that HMRC have been and continue to be completely unreasonable to this lady in her hour of need.

Client 3

Mr Jones has recently become aware of his loan charge debt. He was somewhat surprised as HMRC have never even opened an enquiry on his returns and he had been ‘reliably’ informed over the years by his accountant that everything was 100% ok. Since I picked up this client a few months ago his wife has left him as a direct result of the unbearable stress the situation has caused. He also mentioned to me that it was the night she left that he sat at home realising that he too was going bankrupt and again, this would destroy his career. He isn’t qualified to do any other type of work so he expects the rest of his time will be spent scraping by on minimum wage salary posts. It didn’t surprise me when he also mentioned suicide had crossed his mind as a very real possibility. More disturbing is that this wasn’t just a drunken thought on a bad day. He’s still quite openly informing me that it’s still in the back of his mind depending on how things work out. As I don’t see things ‘working out’ in any way that can be considered a success, I’ve had to consider whether he needs sectioning for his own good.
It’s safe to say that my role of Tax Advisor has not trained me for the much needed counselling role that I now find myself in due to the 2019 Loan Charge. I would suggest that my clients would definitely disagree somewhat with HMRC’s 2019 Loan Charge impact assessment form that states:
this measure is not expected to have a material impact on family life
The loan charge IS without a shadow of a doubt destroying lives, yet HMRC have not recognised this as of today’s date.


Philip Manley