The campaigning group says those who want to try to understand their options need more than the very generic guidance or information about the settlement process that has been published by HMRC. LITRG is also concerned people may be reading content on social media that may discourage or stop them contacting HMRC.

Victoria Todd, head of the LITRG team, said: ‘The loan charge is causing a great deal of debate online and in parliament. Naturally, strong feelings about the loan charge are voiced by some of those affected and we may well see some legal challenges against the loan charge in the future.

‘Although a legal challenge to the loan charge will not stop HMRC from seeking to settle any avoidance disputes, this is likely to leave those affected confused as to what they should do next.’

LITRG’s advice is that all workers potentially affected should contact HMRC without delay to discuss coming to a settlement sum and arranging repayment of any money due.

Todd said: ‘Some people may be tempted to just face the loan charge in April, but we suggest that they do so only after careful research and with a full understanding of their other options.

‘As the loan charge income will be classed as employment income for the 2018-19 tax year, this research not only needs to be about their tax position but also about their benefits position. Our understanding is that it should not impact tax credits and universal credit but it could trigger things like the high-income child benefit charge and stop access to tax-free childcare.

‘It could also trigger higher rates of tax, student loan repayments or cause loss of the personal allowance.’

LITRG has become aware that some loan providers appear to be offering workers the chance to repay the loans to avoid the loan charge or to pay a ‘release fee’ to cancel the loan. This is adding another layer of confusion for those involved; either of these may have adverse tax consequences, it warns.

Todd said: ‘Repaying the loan means workers will need to find the funds to pay the full amount back, although we understand that there may then be some kind of redistribution made to the worker. We are also aware of people receiving offers to have the loan cancelled for a ‘release fee’, which could be a fixed amount plus a percentage of the loan.

‘It is not clear to us that either of these options leave workers any better off. We would also urge workers to be extremely cautious about doing either of these things without fully understanding whether there are any further tax consequences and what it might mean with regards to the loan charge.’

To help deal with these problems, LITRG has released the latest in a series of articles designed to help low-paid workers affected by the loan charge understand what is happening and outline their options.

LITRG article on loan charge settlement is here

Report by Pat Sweet