A woman has told of her horror after being hit with a massive tax bill by HM Revenue and Customs (HMRC) — after working for them as a contractor.
Lisa*, who is in her mid-forties and lives in London, told BuzzFeed News she felt coerced by a recruitment agency into using a loan scheme to be paid, which the government has deemed to be tax avoidance.
"It didn’t even occur to me to think this was something I should check HMRC was OK with. I mean, I was working for them," she said.
She is among hundreds of public sector workers caught up in the loan charge, a controversial policy that has seen around 50,000 people facing demands for life-altering amounts of tax going back up to 20 years.
More than 200 MPs, many of them senior Tories, are calling on the government to suspend the policy — saying it is retrospective and unfairly targets individuals who did not break the law and received professional advice to that effect at the time.
Seven suicides have now been linked to it (HMRC says it is aware of four), along with marriage breakdowns, bankruptcies, and intense anxiety among those affected.
BuzzFeed News also spoke to a social worker from the north-west of England who is facing demands for money from HMRC after working for a local authority on a locum basis.
Susan* said she had no choice at the time but for her wages to be paid via a loan scheme and was also assured by her recruitment agency that it was within the rules.
"I have never done anything wrong in all my life and I'm absolutely horrified by it now,” she said. “Call me naive but I never would have thought this would be allowed to go on. Why would anyone in their right minds set themselves up for this?”
We have changed both women’s names at their request.
An independent review is expected to report later this month, but campaigners have raised fears its findings will now be delayed until the new year because of the general election campaign.
Loan schemes required a worker’s pay to be diverted to an offshore trust, which gave them a loan that was typically not repaid. The government calls these disguised remuneration schemes which, they say, allowed people to sidestep large amounts of tax and national insurance.
As part of a new crackdown on alleged tax avoidance announced in 2016, HMRC was given the power to recoup tax from workers who used these schemes, going back 20 years.
Contractors were sent letters last year telling them to add up all their loans from trusts since 1999 and make an offer to settle the tax that HMRC claimed should have been paid.
For many, this was the first time they were told they had done something wrong.
Those who failed to agree to a settlement now face the loan charge: effectively the total of tax-free loans received over the past two decades, taxed as income all in one year, 2018–19.
The average sum being demanded is around £120,000, according to the Loan Charge Action Group, a grassroots group set up by affected freelancers. HMRC disputes this, saying the median figure is £13,000.
HMRC has been at pains to point out that more than two thirds (65%) of people affected by the loan charge work in business services — compared to only 3% in medicine or teaching and 2% in the social services and community sector.
But an inquiry by a group of MPs earlier this year received evidence from a range of key public sector workers, including social workers, locum doctors, nurses, carers, and 30 NHS employees.
The report from the loan charge all-party parliamentary group (APPG) said: "The loan charge will have, and is having, a disastrous impact on key workers. Many of these individuals are employed via agencies and must operate via 'recommended' umbrella companies as a condition of engagement.”
An HMRC spokesperson told BuzzFeed News the government had never "endorsed or participated" in disguised remuneration schemes and said it was possible for contractors to use the schemes without their engager being aware.
Lisa is a freelance researcher who has worked on various projects in Whitehall. Several years ago she was hired by HMRC via a specialist agency that ultimately supplied outsourcing giant Capita, which is tasked with recruiting workers to the department.
On accepting the job, she said she was given around 24 hours to sign a raft of complex documents. Within this pack were details of how she would be paid via an "umbrella company". Lisa said she was "nudged to go down this route" by the agency.
"You think these are people who are working on behalf of HMRC to recruit people," she said. "It doesn’t occur to you to look into it – you assume they’ve been vetted, that they’re not going to do anything untoward."
She worked for HMRC for several months before moving to a contract at the Valuation Office Agency, an executive arm of HMRC, where she was also paid via a loan scheme.
Then last year she received a letter from HMRC telling her to add up all her loans from trusts and make an offer to settle the tax they claimed should have been paid.
"I literally blanched when I saw it, I thought 'what in the hell is this?'" she said. "It was terrifying."
Lisa went straight to the agency that hired her, which initially told her it was "HMRC scare tactics". She sent HMRC the details they asked for and "got something back which bore no resemblance to what I sent them, saying I owed about £40,000".
"I earn less than £50,000 [a year] — you’re supposed to get five years to pay and they have given me two," she said. She raised her concerns but has had no reply from HMRC since May.
"I’m trying to get a settlement figure that isn’t going to destroy me, but honestly I don’t know how I’m going to pay it," she added.
The agency is now failing to return her calls: "I think the last time I checked, my email bounced. I just know I’m on my own on all this."
Lisa is among a large number of contractors who were advised to enter a loan scheme in order to get around complicated legislation known as IR35, which attempted to class many freelancers as employees.
She was told it was too risky to set up her own limited company and advised that it was best to sign up with an umbrella company in order to be tax-compliant.
Lisa denied she was seeking to avoid tax and said there was no noticeable difference in her paycheck because the agency took a significant deduction from her wages in fees.
"I think I should have felt absolutely safe entering into something that people working on HMRC’s behalf were nudging me to go down," she said. "I never asked to go into an umbrella company, they pretty much said this is the way you need to go if you want to take this contract."
Susan is a social worker who has worked with vulnerable children and families for almost 20 years.
She had always been paid via the Pay As You Earn (PAYE) system, which automatically deducts tax and national insurance from wages, but moved to locum work in 2016 so she could work more flexible hours after a period of ill health.
Like Lisa, she was hired through an agency — in this case, one that sourced social workers for local authorities in the north-west. Susan said she was told by the agency that she needed to be paid through an umbrella company.
"I relied on them to give me the right advice, the right support. They were the ones who said I couldn’t use a personal service company," she said.
"I’ve never been in trouble with the taxman. I’ve always paid my taxes. I said I don’t understand this; I’m a social worker. I wanted to know 'Is it legitimate, compliant?' and he said, 'Oh, yes'."
Susan spent around 18 months being paid via a loan scheme before she got the letter from HMRC last summer. She is not sure how much she apparently owes but believes it is a five-figure sum: "an enormous amount of money that we just haven’t got".
She is now back working full-time for the local authority, paid via PAYE, and says the loan scheme did not give her a big financial boost in comparison.
"We got a better return but what we weren’t getting was any sick pay or holiday pay," she said. "It’s very difficult to understand and I get we were getting slightly more and I understand that would create resentment. But if you were running your own personal service company you were allowed to put your expenses through and I had no reason to think this was that different."
Susan is still waiting to hear back from HMRC about their final demand, which she said is taking a "massive toll" on the family, particularly as they put one child through university.
"I think there’s an inference that we all knew what we were doing and we were somehow trying to avoid tax — absolutely not," she added. “I have worked all my life. I have paid PAYE like everybody else … There was no deliberate attempt to deceive."
HMRC rejected both women’s arguments that they did not know what they signed up for, saying that ultimately an individual is responsible for their own tax affairs.
A spokesperson said it was clear that an arrangement where you are paid in the form of a loan is not "standard practice", especially when that loan is never paid back. Most people would have been able to see from their payslips that the money they received was not being taxed, they added.
"We know that large tax assessments can cause worry and anxiety so we have put in place dedicated resources, including specially trained HMRC officers, to support customers," the spokesperson said.
"We have also set up a disguised remuneration helpline, which can provide details for vulnerable customers of organisations such as the Samaritans and Mind as appropriate, and we are committed to time to pay arrangements in respect of the loan charge, which can run for as long as the taxpayer needs.
"We are committed to treating everyone we serve with respect and sensitivity to their needs and circumstances. If people are worried about being able to pay the loan charge, they should get in touch with HMRC as soon as possible."
In the UK, the Samaritans can be contacted for free on 116 123. In the US, you can reach the National Suicide Prevention Lifeline at 1-800-273-8255.