Loan Charge – Tax barrister in very public rebuke of HMRC factsheet

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A tax barrister is in a very public rebuke over HMRC fact sheet

A tax barrister has responded to the publication of an HMRC factsheet on the 2019 Loan Charge by launching a highly detailed 23-point rebuke of the Government’s legal reasoning on the HMRC Twitter feed.

Keith Gordon, of Temple Tax Chambers, responded to a tweet from HMRC on 17th January claiming to offer “the facts about the loan charge” via a two-page PDF factsheet with his own list of 15 “facts” which seem to contradict many of the claims made by HMRC on the pamphlet.

The 2019 Loan Charge received royal assent two years ago but won’t take effect until the 6th April of this year.  The measure has drawn criticism for its retrospective effect from professional bodies, tax experts and even the House of Lords Finance Bill Sub-Committee, and will leave some individuals charged for several years’ avoided tax in the same year; in some cases, liabilities will run into hundreds of thousands of pounds.  A cross-party amendment to the 2019 Finance Bill was secured earlier in the month which compels the Treasury to review the effect of the charge.

The first line of Mr Gordon’s response suggests a degree of incredulity that the recent Finance Bill amendment, instead of provoking some “soul-searching” within Government, has had little effect in curbing HMRC from “going on the offensive” with this new factsheet.

What followed was a point-by-point critique of the Revenue’s “spin” – we include an edited version below:

  1. HMRC: “People who use these schemes are paid in loans, rather than a salary in the normal way, to avoid paying tax and NIC.”

KG: “The tax code allows employees to be paid in different ways – cash or benefits or both.  They are all taxed differently according to the rules.  So if you are paid wholly by loan, you pay tax under the rules for loans.  And in the loan schemes I have recently seen, the workers did just that – they paid tax and National Insurance on the loans.”

  1. HMRC: “Unlike normal loans, they aren’t repaid….”

KG: “Ask any bank manager – not all loans are repaid.  That is normal.  Of course, when a loan is made there should be the mutual expectation of repayment.”

  1. HMRC: “… and no tax is deducted.”

KG: “Of course no tax is deducted.  There is no provision in the 20,000-odd pages of UK legislation that requires tax to be deducted from a loan.  But tax (and NI) is paid each year on the benefit of the loan … under the tax laws in place.”

  1. HMRC: “This is clearly income and tax should be paid.”

KG: “Just saying ‘clearly’ does not make it true.  If it is a loan, it should be taxed as a loan.  And was.”

  1. HMRC: “HMRC does not approve these schemes ….”

KG: “HMRC does not have to approve arrangements.  They do not even have to like them.

If they don’t like them then they should have challenged them or changed the law to stop them gaining momentum.”

  1. HMRC: “… and has always said they don’t work.”

KG: “HMRC said nothing of the sort until 2016 (at least not publicly).  But assuming that was indeed HMRC’s position – then why did they NOT challenge them?”

  1. HMRC: “50,000 users are estimated to be affected by the loan charge”

KG: “Some say more are affected.  But if it is only 50,000 (rather than 100,000) then presumably it would cost less to cancel the loan charge or to remove its retrospective effect.  But does it really matter how many are affected?  If the loan charge is immoral then it should be removed whether it affects 1 person or 1 million.”

  1. HMRC: “Users’ income on average was twice as much as the average UK taxpayer”

KG: “This is HMRC trying to play the politics of envy.  Plus relying on averages is notoriously misleading.  It allows HMRC to merge the corporate directors who knew what they were doing with the contractors, many of whom were duped into using the schemes.”

  1. HMRC: “70% have used a scheme for two years or more”.

KG: “A bit of an own-goal here.  Given that HMRC failed to challenge the arrangements, that told contractors that HMRC had no issues with them.”

  1. HMRC: “65% work in business services: IT consultants, financial advisers, and management consultants. Around 3% work in medical services (doctors and nurses), teaching, social and community services sector.”

KG: “HMRC know that everyone thinks those who work in medical services and teaching etc deserve sympathy.  HMRC are relying on people thinking that those who work in business services do not deserve sympathy.  HMRC are meant to treat all taxpayers equally.  Even on HMRC’s numbers that’s 1500 members of the caring sector being unfairly treated by the loan charge.  And most of those would have been employed in the public sector (as would many of the 65% as well).  Aren’t those payers also complicit in the avoidance?”

  1. HMRC: “Fewer than 1% of users have an outstanding loan before 2003.”

KG: “DOTAS [Disclosure of Tax Avoidance Schemes rules] was introduced in 2004.  Presumably that means that nearly 99% of the loans were subject to early notification to HMRC.  So what happened??????”

  1. HMRC: “The average user avoided £20,000 per year.”

KG: “First: cut out the use of averages.  The average contractor did not save 20k per year. Any so-called tax saving was used up in fees.  And HMRC are ignoring the tax (and NI) that was actually paid on the loan benefits.”

  1. HMRC: “Tax avoidance takes money away from schools, hospitals and social care.”

KG: “Actually, tax evasion takes far more money away from schools, hospitals and social care.  Plus a lot of money is lost from these sectors by HMRC incompetence.  This is a case in point.”

  1. HMRC: “The loan charge rightly tackles avoidance….”

KG: “No it does not.  It targets one of many sections of society that has paid less tax than HMRC would like and singled them out for special treatment.  If HMRC had really wanted to stop these loan schemes, they should have made clear their position in 2003 or 2004 or even 2010.”

  1. HMRC: “and ensures people pay what they owe”

KG: “No it does not.  It simply imposes a new liability because HMRC missed the boat last time and because, under the law, the workers no longer owed the amounts HMRC would like them to have paid.”

Mr Gordon echoes many similar points raised in respect of Disguised Remuneration and the Loan Charge, that if HMRC disagreed with the legality of disguised remuneration schemes from the outset, then they should have done something about them many years before Finance Act 2017.  That a competent tax authority would sit on an illegal scheme for over 15 years before legislating against it, and then expect to recover all lost tax receipts from scheme users in one go, stretches credibility almost to breaking point.  Genuinely illegal schemes usually do not require further legislation, and are instead contested in the courts.

Mr Gordon also makes a compelling case against the “dehuminisation” of taxpayers: “From HMRC’s perspective, there were some aggressive avoidance arrangements involving company directors obtaining company funds in a tax-favourable way.  Whether rightly or wrongly, HMRC has little sympathy with such schemes,” he said.

“In parallel, many contractors were persuaded to participate in similar arrangements.  However, HMRC had already stigmatised the arrangements as egregious avoidance and in their mind condemned all participants as immoral.  Therefore, they’re just blind to the shades of culpability.

“The Loan Charge is a powerful weapon which might be justifiable to deal with the former situation (although I still have my doubts). However, as HMRC have dehumanised ALL participants they just cannot see why it is so unfair to apply it to contractors.

“Suicide, divorce and bankruptcy are all human tragedies.  But HMRC will not be moved because, in their eyes, everyone affected has ceased entitled to be treated as a real person.”

The relevant Twitter post can be found here, along with the HMRC factsheet: https://twitter.com/HMRCgovuk/status/1085565790680727552

28th January 2019.

Sources:
https://twitter.com/HMRCgovuk/status/1085565790680727552

https://www.accountingweb.co.uk/tax/hmrc-policy/tax-barrister-throws-the-book-at-hmrc-loan-charge-factsheet#.XE7QphmU2_4.twitter

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/771149/Loan_Charge_Infographic.pdf