We have talked people down off ledges,” says tax adviser Graham Webber. “We were supposed to be closing early for Christmas and I got very worried about this client who was making threats on public forums about killing himself. He came in, and the first thing he said was, ‘I’m not afraid of death’. I’ve been doing this job 40-odd years, and I’ve never had a client tell me that before.”

Webber’s hapless individual owes £180,000 and is just one of the 2,000 clients on his books at specialists WTT Consulting who face a brutal tax time-bomb set to explode next April in the form of the so-called Loan Charge. An estimated 100,000 freelance contractors – in fields ranging from IT to oil and gas workers and the medical profession – are facing life-changing tax bills from HM Revenue and Customs that could leave them in penury.

We have to go back nearly 20 years to uncover the origins of the current fiasco. In 1999, the Revenue decided that all contractors should be treated like employees for tax purposes under IR35 regulations, putting up their tax bills. But many contractors – those with specialist skills who were only needed for a short time faced higher costs and wanted to avoid the new regime and in many cases their clients pressured them into doing so. But the extra hassle and expense of operating though their own companies attracted contractors to a wave of new mass-marketed schemes, each with a “promoter” bringing together thousands of individuals in some cases.

One common method was the use of employee benefit trusts (EBTs), based offshore in places such as the Isle of Man. Employers could pay salaries into a trust, set up by the promoter, which then mostly paid the employee in the form of loans, which were tax-free as they were not deemed income or earnings at the time. The “loans” were never meant to be paid back. The promoter would generally get a cut of around 15% and the contractor around 85%. The employer, meanwhile, avoided paying National Insurance contributions.

A first attempt at legislation in 2010 had little impact on the growth of such schemes, but in March 2016 the Government delivered a bombshell on what it deemed disguised remuneration: HMRC would now levy a tax charge on the loans, which were now to be treated as taxable income, falling due in 2019. Freelancers, many of whom claim they were mis-sold “compliant” schemes, are now legally obliged to declare all their previous loans, effectively making the Revenue’s raid a retrospective tax hike going back decades, or face even higher penalties.

HMRC is offering to settle before the April deadline strikes, but contractors report an unsympathetic approach to the thousands caught up in the net who face the loss of their homes, with the financial stress pushing marriages and health in some cases to breaking point.

HMRC’s pursuit of individuals also comes despite the outcome of a long-running court case last year involving Glasgow Rangers football club using an EBT to pay players and bosses. The Revenue won the case, but Supreme Court judges said the tax liability rested with the employer, which campaigners say should mean the taxman going after employers and promoters, rather than the contractors. The Loan Charge Action Group estimates even a contractor on a modest £30,000 salary with five years in a remuneration scheme could face a bill of more than £40,000. Some contractors – IT workers in the financial sector for example – might never work again in financial services if forced into bankruptcy, as this would bar them from the sector. Thousands of health workers, such as locum doctors, are also affected, says Dr Iain Campbell, secretary-general of the Independent Health Professionals Association. “It’s not just 20 years of retrospective taxation, it’s a preventable mental health timebomb. Sadly, we’ll see more suicide attempts. Where’s the state’s duty of care?” he says.

Liberal Democrat MP Stephen Lloyd has taken up the baton in parliament with an early day motion and has called for a Westminster Hall debate on the issue. “What I’m after is reasonableness. I’m not saying ‘write it all off’, I’m saying proper negotiation,” he says. “I also think they should focus a lot of effort on the employers – across the public sector, quite a lot of them – who frankly, I think, nudged quite of a lot of these folk into taking up these contracts. They’re completely off the hook. I think HMRC are focusing on what they would see as the ‘little people’. There are circumstances here that are quite special, and they are introducing a retrospective element that doesn’t stand the test of fairness.”

In an update last November HMRC said it expects to garner £1.2 billion in repayments alone next year. A spokesman said loan schemes were “very high risk” and that it was pursuing the promoters of the remuneration schemes. However, he denies the organisation was being aggressive in its pursuit of individuals. “We want to do all we can to make it simple for people get out of these schemes – we are there to help. And we can explore a range of flexible options for those who may have difficulty paying what they owe,” he says.

Meanwhile, a bleak financial future looms for tens of thousands of workers. Webber adds: “Our MPs and those in HMRC with the authority should look again at this situation and understand the human impact. If they are not prepared to allow some common humanity, frankly I hope they struggle to sleep at night. This disaster will happen unless it is prevented and it can easily be stopped.”

Parliamentary push

Stephen Lloyd’s early day motion has been supported by 50 MPs across the political spectrum so far, including Liberal Democrat leader Sir Vince Cable, former Conservative mayoral candidate Zac Goldsmith, and Dagenham’s Labour MP Jon Cruddas.

It says: “This House recognises that the Charge will affect contractors, freelancers and agency workers, including social workers, supply teachers and bank and locum nurses and doctors; notes that employment was not an option and in some cases the company or organisation insisted on those arrangements, including to avoid paying National Insurance... believes it is unfair that HMRC are pursuing people who acted in good faith rather than the client organisations, agencies or umbrella companies all of whom benefited significantly; notes that HMRC are aggressively pursuing individuals.... with no independent right of appeal; further believes that the Charge is likely to cause financial distress and bankruptcies, and believes that retrospectively taxing something that was technically allowed at the time, is unfair”.

Here are extracts from 170 pages of impact statements collected by the Loan Charge Action Group:

‘Daisy’ — £100,000

“I have considered suicide in my darker days, to the extent of researching my life insurance to see if it would pay out if I ended it all. It is only the support of my family and counselling which has stopped me taking this option. If the Loan Charge goes ahead bankruptcy will be my only option.”

‘Wilfred’ — £210,000

“HMRC did not ever contact me until a year after I had retired... Having served my country in the Royal Navy from 1980-89, I have unfortunately now had my eyes opened to how hostile and callous the wheels of government are in pursuing the weakest link.”

‘Morgan’ — £350,000

“I have taken to alcohol on a number of occasions, anti-depressants and other medication. I have gained weight due to stress and anxiety and stopped any form of socialising as I just don’t want to be with people any more.”

‘Albert’ — £360,000

“The HMRC letters always seem to come the week before Christmas or on or around my birthday... my heart rate always increases massively when I have a brown envelope.”