HMRC’s attempts to claw back taxes from people who used tax-planning schemes that they thought were legal have caused “widespread anxiety and distrust”, MPs have warned.
MPs have previously claimed that the “loan charge” introduced to recover taxes on income that had effectively been disguised as loans has driven several people to take their own lives.
About 50,000 people are thought to have used schemes, often on the advice of their employer or a financial adviser, to route their money into a trust that then paid them a salary in the form of a loan that was never designed to be repaid. Because the money was described as a loan it was not subject to income tax.
After a crackdown, many have been left with bills for income tax covering up to two decades of their earnings.
HMRC has now clarified that it will not force people to sell their homes or make them bankrupt to pay back taxes under the loan charge.
A new report by the Treasury Sub-Committee published on Wednesday found that collecting the tax was the correct approach but that the way HMRC had gone about it caused unnecessary stress.
The committee said HMRC should give vulnerable taxpayers involved in tax disputes better guidance about the law and more support to understand their rights.
Former Brexit secretary David Davis claimed earlier this month that four suicides had been linked to the way HMRC has dealt with chasing unpaid taxes relating to the loan charge.
Mr Davis urged the Treasury to consider people’s mental health when implementing the policy.
HMRC said it would allow people who are facing large bills under the loan charge to put in place affordable repayment plans.
John Mann, chair of the Treasury Sub-Committee, said HMRC needs to do more to protect vulnerable taxpayers.
The Labour MP added: “One of HMRC’s key responsibilities, as required by parliament, is to protect public funds from tax avoidance.
“As such, HMRC introduced the loan charge to tackle the use of disguised remuneration schemes, which it describes as an anti-tax avoidance measure.
“Setting aside the policy, HMRC’s administrative approach to the payment of large unexpected tax bills has been sensible.
“The delay, however, in clarifying payment terms for those wanting to settle their past use of such schemes has caused widespread anxiety and distrust.
“HMRC’s measures to improve its approach to vulnerable taxpayers are welcome, but it must urgently improve the guidance available for those involved in tax disputes.”
The loan charge came into effect earlier this year to tackle the use of so-called disguised remuneration schemes.
All loans made under such schemes since April 1999 that are still outstanding in April 2019 are now taxed as income.
HMRC automatically allows individuals who earn below £50,000 annually five years to pay the tax that they owe, and seven years for those earning £30,000 a year.
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