A report published last Wednesday by the House of Commons’ Treasury Committee covering the controversial Loan Charge, has been branded a “whitewash” and a “waste” by a leading chartered tax adviser.
Graham Webber of WTT Consulting, who delivered key testimony to the House of Lords Economic Affairs Committee and the Loan Charge All-Party Parliamentary Group enquiry, has published a scathing response to the Treasury Committee’s report, Disputing Tax, asserting that the 16 months and hundreds of manhours spent on it were a waste of time, given that the report did not find a single criticism over the government’s handling of the Loan Charge. Especially for the way it affects self-employed people and independent contractor tax affairs.
The report summarises the findings of two inquiries launched by the Treasury Sub-Committee on the 27th March 2018, covering the steps that HMRC has taken to address public concerns surrounding tax avoidance and evasion, and HMRC’s approach to conducting tax enquiries and resolving tax return disputes.
The report revealed significant shortcomings of the Disclosure of Tax Avoidance Schemes (DOTAS) regulations, introduced in 2004 with the intention of providing government with greater visibility over newly-exploited tax loopholes. HMRC admitted to the committee that fewer than half of all known avoidance schemes were actually registered under DOTAS.
Mr Webber suggests that a major contributing factor – one not mentioned by the committee – was the restructuring of most loan schemes following Finance Act 2011 to deliberately place them outside of the remit of DOTAS. A major loan scheme provider recently lost a key DOTAS ruling at the First-Tier Tribunal in respect of a product launched in 2014. The DOTAS regulations were tightened up in February 2016.
In response to HMRC’s perceived lack of visibility of the scale of tax avoidance raised by the inquiry, the report recommends that HMRC make an annual report to the Treasury Committee, summarising the amount of people involved in avoidance schemes and profiling them by criteria such as sector and income level. Webber calls this a “pointless” waste of resources, and highlights the absence of criticism of the Loan Charge, suggesting that “the committee has lost all connection with the real world”.
Mr Webber argues that promoters of the Loan Schemes have been let off without pursuit – but also, crucially, that legislation already exists to allow for Loan Charge tax debts to be collected from agencies and clients that used contractors operating loan schemes, via section 684 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which allows HMRC to force any company engaging an employee of an offshore entity to collect tax and NICs at source.
Webber claims that HMRC know who scheme users were and could easily have found their end-clients and made them pay taxes under s684 ITEPA, but are now denying that they had any power to do so. He also suggests that if contractors had been taxed at source by their clients as a result of using an offshore employer, they would have quickly changed to a different model to pay taxes, thus inhibiting the proliferation of loan schemes.
Webber takes particular issue with the presentation of the Loan Charge to the committee by HMRC, calling out the statement “The Loan Charge was introduced to tackle the use of disguised remuneration schemes and came into effect on 5th April 2019” as disingenuous “chutzpah”, because, as Webber puts it, the Loan Charge retrospectively came into effect on 6th April 1999. Whilst this assessment is technically inaccurate in purest legal terms – the Loan Charge did come into effect on 5th April 2019 – it would have served well to better illustrate to the MPs who comprise the Treasury Committee, who are not tax barristers, of the quasi-retrospective scope of the rule, which can affect loan transfers and deductions going back up to twenty years ago. The implication is clear: HMRC did not present their testimony to the committee in good faith.
“Let’s not forget that many of the pre-2011 schemes were disclosed and therefore HMRC absolutely knew the names and users”, says Webber. “They failed miserably to open enquiries and are hiding their embarrassment by making retrospective law. They claim this is fair. It would be equally fair (but less tax would be collected) if for every scheme a count was made of who used it, who has [sic] enquiries opened in time. If the latter is less than 50% of the former ([and] it is) then it is ‘fair’ that all enquiries should be closed with no adjustment.
“We have several hundred files in which there is a clear audit trail of a systemic and sustained campaign from promoters to mislead, misrepresent and in some cases being blatantly dishonest in how they presented their wares to contractors. Admittedly we do not act for all under enquiry. We though tend to act for those who take their obligations seriously and who can therefore be expected to be diligent about their affairs.
“If a significant proportion of this group was taken in, what percentage of those who are more trusting and willing to believe professional advisers, would be vulnerable? Far from a ‘few’, I would be confident that more than 50% of those using the schemes were unaware of the implications.
“It has to be said that the accounting and tax profession has not covered itself in glory in this area and it is therefore perhaps not surprising that the evidence was given as it was. No tax adviser is going to report to their controlling body what might be seen as errors of judgement and therefore the picture to those in that body is incomplete.
“It is frightening that the MPs took the evidence at face value but then again they were hardly hostile cross examiners of HMRC either.”
Boris Johnson committed to an independent review of the Loan Charge during the Conservative leadership campaign but, to date, no review has been announced. Until April, taxpayers were able to spread payment on Loan Charge debts by agreeing to a highly criticised settlement plan that required taxpayers to waive their right to appeal under the Taxes Management Act 1970 and common law.
Any taxpayers that did not sign up to HMRC’s Loan Charge settlement plan will be liable to income tax and National Insurance on eligible loan balances in their entirety – many covering several years’ payments – in the fiscal year 2018-19, the first payment on account for which was due on 31st July.
The Loan Charge All-Party Parliamentary Group, a cross-party committee of MPs set up to review the Loan Charge, today released an impact statement sent to HMRC minister Jesse Norman by an affected taxpayer:
“…since all of this I’ve self-harmed, on mirtazpine, escitroplam & diazepan [sic] for anxiety & panic attacks. I’m seriously dwelling on suicide from the day I wake to the time I go to sleep. Sick with worry.”
9th August 2019.
