Leading tax barrister hits back at Thornberry over contractor tax Loan Charge

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Close up image of a barrister's gavel lying on a desk in front of some books in personal library

A tax barrister who has been an eminent critic of the 2019 Loan Charge has criticised the Shadow Foreign Secretary Emily Thornberry after comments she made about the unpopular contractor tax in the Islington Tribune, accusing her of “taking no regard of [the] human rights breaches” caused by the tax rules.

Thornberry’s comments came in an article about ex-HMRC contract worker Jennifer Graham, who claimed to have been guided into an umbrella company that paid her in loans by a “government recruitment partner.” She now faces a liability of £48,000 under the Loan Charge, but said Ms Thornberry had been of “little help.”

The Shadow Foreign Secretary, who, as MP for Islington South, is Ms Graham’s local MP, told the Tribune: “I know many constituents are facing difficulty because of this issue, and I will urge HMRC in all situations to look at people’s personal circumstances and come to sensible arrangements to give them time to pay the tax they owe.

“But on the basic principle, anyone knows that if they are being paid an income, and paying no tax on that income, then they are enjoying the benefits of all the public services we rely on, but unlike the rest of us they are getting them for free, and that is simply not right.

“While I sympathise with the personal difficulties many individuals are facing, I cannot and will not criticise HMRC for taking action.”

This prompted barrister Keith Gordon, of Temple Tax Chambers, to pen a letter to the newspaper in defence of the contract worker, and to condemn the controversial tax rules in general, likening it to having 15 years’ parking tickets charged in one go:

“Suppose there is a stretch of road where parking is restricted, but where the yellow line has faded or been dug up. A motorist is unsure whether or not to park there, but sees that other cars seem not to attract any tickets.

“The motorist therefore parks there one day, thinking that if s/he gets a ticket, s/he will not return on another occasion. However, the day passes and no ticket is given. So, the motorist returns the next day. And still no ticket. So, the motorist continues to park there. This continues for many years.

“It is now far too late for the local authority to issue any parking tickets. However, there would be an outcry if a new law were passed to say that the motorists should now pay a charge equivalent to the value of all the tickets they ought to have accumulated over the previous years. The loan charge is equivalent to such a new law.”

The case will provide further embarrassment to HMRC, which was found during an inquiry into the Loan Charge by Parliamentarians earlier in the year to have unwittingly engaged self-employed people that were being paid via the loan schemes that it so vigorously opposed.

In his letter to the Tribune Mr Gordon pointed out that nearly 200 MPs and many peers – including retired judges – have called for the Loan Charge’s repeal: “at a time when Parliament is so divided, the objection to the loan charge is cross-party and even manages to unite remainers and leavers.”

He then asserted that Ms Thornberry – a qualified barrister – had dismissed her constituent’s concerns without even considering the alleged human rights breaches caused by the new law.

“The loan charge cuts across the rights of taxpayers to certainty in relation to their tax affairs and by-passes the statutory time limits which provide some sense of balance in the tax system,” he said.

Emily Thornberry was criticised last year for replying to a constituent who contacted her to complain about the Loan Charge with a letter that appeared to contain a template paragraph condemning tax evasion. The difference between tax avoidance and tax evasion is significant, with evasion being a criminal offence that often carries custodial sentences. Loan schemes instead fall under the definition of tax avoidance.

Jennifer Graham, whose name was changed at her request by the Islington Tribune, said her unfair treatment in respect of the Loan Charge had made her consider leaving the country: “I don’t want to live in the UK any more if this is how people are treated.

“I went to give evidence in Parliament recently and there were grown men crying about how much they were told to pay. A whistleblower said they knew of six suicides related to the loan charges.”

The 2019 Loan Charge was introduced in 2017 to tackle perceived tax avoidance through tax-free loans received via intermediaries (usually offshore trusts), but in addition to closing down the legal loophole exploited by such schemes, it also – controversially – can be applied to loan balances that remain from prior scheme use for up to twenty years. In other words, it can apply income tax and National Insurance to up to twenty years’ historical scheme transactions in one tax year.

Critics argue that retrospective tax rules undermine taxpayer certainty and could breach the Human Rights Act.

New HMRC Minister Jesse Norman has been flooded with requests to delay the implementation of the unpopular contactor tax, which took effect in April, including an open letter signed by 184 MPs – 68 of whom are Conservatives.

The Tribune later reported on another Islington constituent who owes £400,000 under the Loan Charge for his work as a financial contract worker between 2004 and 2012.

“It’s absolutely traumatic,” he said. “How on earth can we come up with the money without selling the house?”

He described the Islington South MP’s response as “totally hopeless,” adding: “She’s not paying any attention to the legalities and formed her own view on what’s fair and not fair.”

“All we want is to be judged according to the law which was in place at the time.”

20th June 2019.