Loan Charge: Pensioner with cancer bankrupt after tax 'dupe' - as MPs regroup to fight 'draconian legislation'

When John left behind his 30-year career in the Royal Navy to work in IT, he did not envision it would leave him bankrupt with his mental health in tatters.

A break in employment, following the death of his youngest son, led him to take up freelance work as a contractor in an arrangement that would see most of his salary paid in the form of tax-free loans.

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In emails seen by Sky News, John was assured by his employer that the scheme was "fully kosher", "QC approved" and "compliant with HMRC guidelines".

But that was not the case and the veteran, now in his 70s and fighting prostate cancer, recently declared himself bankrupt over a retrospective tax liability of £130,000.

John, who was "on the brink of taking his life" over the unaffordable bill, shared his story with Sky News as MPs regroup to fight "draconian legislation" known as the "Loan Charge".

The controversial tax policy seeks to recover large sums from freelancers who were commonly paid in loans through offshore trusts during the early 2000s. It has been linked to at least 10 suicides since it was introduced by the previous Tory government.

Critics say the estimated 67,000 people affected are victims of mis-selling, who now face financial ruin and personal harm because of HMRC's approach.

'I was duped'

John, who asked Sky News not to use his real name, worked as an IT contractor between 2009-2015, after retiring from the Royal Navy.

He was struggling to find permanent employment following his bereavement when he was at "rock bottom", and "the terms were that I had to sign up to be a contractor or not get the job," he said.

This involved joining an agency that would pay most of his salary in loans, via a Jersey-based trust, on the understanding that they would not have to be paid back. Loans, unlike a salary, are not subject to income tax or National Insurance.

In email exchanges seen by Sky News, John challenged the legality of the scheme and was met with assurances from his employer that it was all fine.

He was told in one email: "The solution has been passed by QC and is fully compliant with HMRC guidelines, so yes fully kosher."

In another, he was told his employer would "look after his needs" in terms of his tax liabilities, and he would still be a PAYE employee.

"I put my trust in the professional accountants and experts in the field of taxation and finance for which I paid a percentage of my wages," said John.

"I was a veteran of 26 years and was never trained to watch out for unscrupulous civilians who would dupe you to this extent."

'Mental torture'

HMRC said it does not approve these schemes and has always said they don't work.

But for John this only became apparent in 2016, a year after retiring, when the government announced a plan to crack down on historic loan arrangements which the tax office now calls "disguised remuneration" schemes.

The Loan Charge was to add together all outstanding loans and tax them in one year. It left John facing demands for unpaid tax, with interest and penalties, between £82,000 to £132,000 - money he didn't have.

Attempts to settle or come up with a payment plan were met with "delay, delay and delay" - causing uncertainty which pushed him "to the brink of taking my own life".

"The devastation, mental torture, stress, anxiety, depression this caused did nothing for my cancer", he said.

"If you haven't been deeply depressed, you will not know what it is like.

"No matter what I was told, no one could get through to me. I was a mess. My wife was very concerned for my well-being, she kept a close eye on me and never left me alone in the house for fear of returning to an unwanted situation."

John ultimately declared himself bankrupt in April this year. It was "the only way out" for him and his wife, a stroke survivor, to put the Loan Charge saga behind them and enjoy what they could of their retirement.

At 74, he says it will not have a hugely long-term impact on him. But he is concerned for other people in his situation and wants a change of course from HMRC, who he accused of making him feel "like a criminal".

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"HMRC should never be so powerful that they can drive multiple people to take their own lives," he said.

"We would have paid the tax if the promoters or our employers had done the right thing and used the PAYE system as it should be. They mis-sold these schemes and duped us all into believing it was all HMRC compliant and QC approved.

"We are the small people, the low hanging fruit."

Minsters 'considering Loan Charge'

Chancellor Rachel Reeves vowed in January to review the Loan Charge if Labour were to win the election.

A treasury source told Sky News the new government "recognises the Loan Charge is a very important matter for many individuals" and said ministers "have been considering this since taking office and will provide an update in due course".

Campaigners are cautiously hopeful of a solution after treasury minister James Murray met with victims shortly after taking office.

The Loan Charge is opposed by politicians from across the political spectrum, who have likened the scale of the injustice to the Post Office horizon scandal.

MPs say HMRC should have done more to police the contracting sector when the schemes boomed, off the back of new legislation which made it harder for contractors to work as self-employed.

'Fair resolution needed'

Greg Smith, the Conservative co-chair of the Taxpayer Fairness APPG (All-Party Parliamentary Group), said the Loan Charge was not only unfair but a "catastrophic failure, with over 40,000 cases still unresolved as well as 10 confirmed suicides".

His All-Party Parliamentary Group reconstituted on Tuesday after disbanding for the election, flanked by around 100 MPs.

They will prioritise holding Ms Reeves to her promise of a review while highlighting the "absurdity" of HMRC going after people for money "they know they don't have" rather than those who profited from selling the schemes, he told Sky News.

He said: "Ultimately we need a fair resolution that avoids further suicides and stops persecuting and bankrupting people whose only mistake was following professional advice, and instead focuses on those who recommended, mis-sold and profited from the schemes, offered to people who didn't have the choice to work as employees."

Mr Smith also called for an "overhaul of HMRC", alongside new legislation to enshrine taxpayer fairness, such as a taxpayer bill of rights, "to protect citizens against abuse of power and by the tax authority and to prevent a Loan Charge Scandal ever happening again".

HMRC 'take taxpayer wellbeing seriously'

HMRC said they "appreciate there's a human story behind every tax bill and we take the wellbeing of all taxpayers seriously".

A spokesperson added: "We recognise dealing with large tax liabilities can lead to pressure on individuals and we are committed to supporting customers who need extra help.

"Our message to anyone who is worried about paying what they owe is: please contact us as soon as possible to talk about your options."

Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK.