HMRC has urgent questions to answer over loan charge, says Labour leader Sir Keir Starmer

Sir Keir has also revealed that he has ordered his Shadow Treasury Ministers to work with loan charge campaigners to prevent this type of controversy arising again.

Sir Keir made the comments to Keith Gordon, the tax barrister, in a letter which has been seen by The Yorkshire Post.

In his letter, Sir Keir said: "We recognise concerns about the impact of the loan charge on people's livelihoods.

"Many people face substantial payments for schemes they were often inadvertently forced into by employers or poorly advised by accountants.

"The impact in far too many cases has been extremely serious, in some cases leading to distressing financial and personal harm.

"We believe HMRC has urgent questions to answer about the handling of this issue and to ensure enforcement is fair and proportionate.

"That's why we supported an amendment to last year's Finance Bill that would have forced a review of the impact of the loan charge scheme by an independent panel within six months.

"Shamefully, this was voted down by the Conservatives who are still looking to avoid scrutiny of their handling of the issue

"As you will be aware, we have not opposed the Government's substantive changes to the loan charge as they are clamping down on tax avoidance schemes.

"But we will continue to push for HMRC to resolve cases in a fair and effective manner."

Mr Starmer said there was draft legislation published recently which seeks to clamp down on promoters of the sorts of schemes subject to the loan charge

He added: "Since you raised this with me, I've instructed my Shadow Treasury Ministers to scrutinise this legislation closely and improve it, with the help of loan charge campaigners, to prevent anything like this happening again."

The loan charge, announced by Government in 2016, was designed to tackle tax avoidance schemes where individuals receive income in the form of loans that are not repaid to avoid income tax.

Following a public outcry, after thousands of people on modest incomes faced large and unexpected tax bills, the Government commissioned a review into the policy in 2019.

While the review acknowledged there was a “clear public interest” in preventing the use of loan schemes to avoid tax and maintained the principle of taxpayers being responsible for their tax affairs, it concluded that the loan charge went too far; overriding taxpayers’ statutory protections by applying an unprecedented 20-year look back period and failing to adequately consider the serious distress it would cause some of the people affected.

It said the charge should continue to apply to loans entered in to from December 9. 2010 onwards to recoup tax that is due.

The review has not ended the controversy.

At least 115 Parliamentarians have signed a letter to the Prime Minister and the Chancellor Rishi Sunak calling for a “fair resolution” to the loan charge saga.

In June, the Chancellor Rishi Sunak told The Yorkshire Post that the policy had “already been through” a lot of scrutiny and been amended and adjusted.

HMRC has said that the number of avoidance promoters in the market has greatly reduced in recent years and it is focusing on tackling a small and determined group who are still promoting schemes.

It has also said it is right that it continues to tackle these types of avoidance schemes, because they deprive public services of vital funding.

An HMRC spokesperson said: “The Loan Charge was introduced to ensure those who used disguised remuneration tax avoidance schemes paid their fair share of income tax and national insurance contributions. Individuals are responsible for their own tax affairs, and it is only right that we continue to tackle these type of avoidance schemes as they deprive our public services of vital funding."

The statement added: "Sir Amyas Morse led an independent review into the policy in 2019 and concluded that it was right that the loan charge remain in force. The Government recognised concerns around its impact, which is why it accepted all but one of the recommendations made, leading to significant changes in legislation.

"We encourage anyone who is worried about paying their Loan Charge to contact us so we can help.

"We are committed to working with taxpayers to enter manageable payment plans to spread their tax liability and ensure that they are affordable.