Johnson’s tax cut pledge is an affront to Loan Charge sufferers

Confused frustrated young man holding mail letter reading shocking unexpected news nonsense in paper document, mad about high bill tax invoice, debt notification, bad financial report, money problem

Bill started contracting in September 2012, working as a software engineer for a financial services firm. New to contract work, Bill didn’t have a limited company – but the recruitment agent who got him the £400 per day gig assured him this wouldn’t be an issue: “You could set up a limited company, but it’s a hassle and you’ll never know where you stand in respect of IR35. Most new contractors choose to work through umbrella companies, at least to start with, and on your pay rate there are umbrella companies that can help you receive more or less that same net as you would through a limited company. In fact, I could introduce you to one if that would make life easier?”

Without even fully understanding what an umbrella company was, Bill tentatively said yes, and within five minutes his phone rang – the umbrella company had been passed all of his details from the agency and were ready to set him up.

“They answered all of my questions about contracting and the nature of umbrella companies very satisfactorily,” says Bill, “however, they didn’t explicitly tell me that I would be paid in loans. They said it was a tax efficient arrangement designed by tax QCs that had been in use for many years, and that it was registered with HMRC. It did sound a bit unorthodox, but so did many aspects of working as a contractor. They made it seem like it was the industry-standard way of operating for a contractor on my pay grade.”

After signing a few initial contracts sent through the post, Bill settled into a routine of sending off his timesheets and getting paid. He forgot most of the umbrella’s initial sales pitch. The company would assist with his tax returns at the end of the tax year, which were accepted by HMRC without any queries. Three years passed, then Bill accepted a permanent role.

In 2018, Bill received a letter from HMRC telling him that a brand-new tax called the 2019 Loan Charge had been enacted and was applicable to every payment he’d ever received when he was performing contract work. He had received over £200,000 from his umbrella company over the three years. This was to be subject to income tax and National Insurance, at the higher and additional rates, because he was also receiving a salary from his job. He was presented with an ad hoc tax bill of over £100,000.

Bill’s story is similar to thousands of other self-employed people and taxpayers as a result of the draconian Loan Charge. This contractor tax law was enacted to allow HMRC to bypass the statutory time limits on questioning tax returns and enable them to apply tax deadlines where their own incompetence meant that they failed first time around.

Had HMRC launched an enquiry into the very first tax return that Bill submitted, it would have drawn his attention to the fact he had been bamboozled into using a loan scheme that was likely to be attacked by HMRC. He may have chosen at that point to stop using his umbrella company and take a net pay cut in order to avoid the risk of accruing a large tax liability. But there was no enquiry, no investigation, no correspondence and thus no way for Bill to know the risk he was operating under – quite the contrary, in fact: when Bill’s tax returns, clearly marked with a tax avoidance scheme reference number, were accepted by HMRC, the strong implication was that they were approving his use of the scheme as well.

Now thousands of individuals are left having to pay life-changing sums of money and huge tax bills, further augmented by insulting compound interest charges, when it was HMRC that took so long to act. Up to six people may have committed suicide as a direct result. The daughter of one of these people called Andrea Leadsom on a radio phone-in to tell her the Loan Charge had “ruined an indestructible man. It robbed him.” HMRC will only offer to split payment if taxpayers sign dubious waivers accepting culpability and giving up their rights to appeal under English common law.

Nearly 200 MPs and peers have lobbied Government to repeal or delay the Loan Charge, but against the backdrop of austerity and Brexit uncertainty, the £3.2 billion golden egg that the Exchequer stands to gain from the controversial levy is just too much for the Treasury to let slip through their fingers.

Which is why Boris Johnson’s recent pledge to cut income tax for the richest members of our society is all the more insulting and is a true affront to those facing the Loan Charge, and to friends and family members of those who have already taken their life as a direct result of the tax rules.

Johnson’s pledge is estimated to cost £9.6 billion per year, almost three times the amount of money the Loan Charge is expected to recover, on a one-off basis, through ruining the lives, careers and retirements of law-abiding citizens, many of whom weren’t even aware that they weren’t paying the correct amount of tax due to promoter fees obfuscating the fact that they were paying near zero total tax.

Tax and employment law is very clear, if an employer (umbrella company) has not deducted the correct amount of PAYE income tax and National Insurance, that is their mistake and it is they who must correct the difference, a principle highlighted by the Supreme Court’s decision in the Rangers FC case. The Loan Charge rides roughshod over this and many other principles of tax rules and employment law.

The ugly – and only – interpretation that one can arrive at, is that Mr Johnson cares more about being voted in as Prime Minister than he does about taxpayers committing suicide. He cares more about being PM than the severe suffering being inflicted on people who work in one of the engine rooms of the UK economy, and he cares more about being PM than he does about having a fair, predictable and just system for UK citizens to work under.

It should also highlight a very disturbing recklessness that immediately disqualifies him from the top job in British politics. Philip Hammond’s self-imposed policy of borrowing below 2% of GDP could easily be thrown out of the window.

If Boris’ involvement in the Vote Leave campaign didn’t already make all of this clear, his recent tax pledge to line the pockets of his Tory member constituency, whilst thousands suffer at the hands of an egregious and unconstitutional tax policy, should.

“They voted for Tony, and yet they now get Gordon, and a transition about as democratically proper as the transition from Claudius to Nero. It is a scandal.

“The extraordinary thing is that it looks as though he will now be in 10 Downing Street for three years, and without a mandate from the British people.”

– Boris Johnson in 2007 during Gordon Brown’s Labour leadership bid.

June 27th 2019