Treasury ignores spirit of the law to duck Loan Charge review
With just over a week until the controversial 2019 Loan Charge takes effect, the Treasury published its “Report on time limits and the disguised remuneration Loan Charge” which received concerns from MPs, campaigners and tax professionals.
The report was forced out of the Treasury by Parliament following an amendment to the Finance Bill by Liberal Democrat MP Sir Ed Davey, the chair of a cross-party committee of MPs that have been investigating the unpopular tax. Sir Davey was prompted to ask for the review following intense lobbying from involved taxpayers and tax professionals.
The problem is, however, that MPs and peers were expecting a comprehensive review of the Loan Charge and its potential effects on the public. The report simply reaffirms the Government’s intention to implement the policy, with recycled government justifications.
This evasion of the issue could become a liability if the government doesn’t make people aware of the details of the charge before it is implemented. The Loan Charge’s primary goal is to prevent tax evasion by charging those who received loans through disguised remuneration schemes which have not been taxed.
In most cases the affected contractors were unaware of what the payment meant or were just following the advice of accountants. Anyone who has been remunerated via a disguised remuneration loan since 6 April 1999 will face a retrospective charge for all outstanding loans in the 2018/2019 tax year.
Davey’s Finance Bill amendment, passed in January and now contained in section 95 of the Finance Act 2019 (FA2019), required the Chancellor of the Exchequer to review new time limits for offshore investigations and compare those limits to “other time limits on proceedings for the recovery of lost tax, including, but not limited to, those provided for by [the Loan Charge tax].”
Widely heralded at the time as a welcome intervention, it became apparent earlier this month that the promised “review” would actually take the form of a simple report written by HMRC. This prompted Ross Thomson, Conservative MP for Aberdeen South, to ask the Prime Minister at PMQs on 6 March to “personally intervene to ensure a genuine review and an urgent delay into the Loan Charge so that this review, as promised, can be carried out.” Theresa May appeared visibly shocked upon hearing that the review had been dialled-down to a simple report, amid chaotic scenes on the Treasury bench.
The Prime Minister subsequently delegated the issue to the Financial Secretary to the Treasury, Mel Stride, who wrote to Mr Thomson to say: “I can assure you that the report required by Section 95 of the Finance Act 2019 will consider the impact of the charge on DR loans.”
This was legal sleight-of-hand, however, as the wording of the Finance Bill amendment contained a loophole – whilst the Loan Charge targets loan balances relating to tax evasion going back up to twenty years, the law is not ex post facto, or retrospective, in the absolute technical sense, because it is applied to loan balances that exist from 6 April 2019 onwards. Thus, argue the Treasury in their report, the twenty-year eligibility period for loan issue is incompatible for comparison with the new offshore assessment time limits.
The irony that the Treasury and HMRC would seek to use a loophole in the Finance Act to avoid acting in the spirit of the legislation has not been lost on commentators. The amendment was obviously attempting to force a comparison between new increase offshore time limits of twelve years, to the much greater twenty-year time frame which the Loan Charge applies to.
The Loan Charge All-Party Parliamentary Group (APPG), which was set up to assist the yet-to-materialise Treasury review, were furious. Vice-chair Ruth Cadbury MP responded: “It is no surprise at all that the Treasury have tried to fob off MPs and journalists with this whitewash, considering the way they have mishandled the whole Loan Charge scandal from start to finish. It is disgraceful that they have failed to review the impact the Loan Charge will have and are still trying to pretend it will not ruin many lives.
“Considering that HMRC have now admitted they are aware of a suicide, as well as knowing about the anxiety many people are facing, the fact that they and the Treasury continue to refuse to delay the Loan Charge is a disgrace.”
Ross Thomson MP said: “We already knew that the Treasury were acting in bad faith, but it is deeply disappointing that they have failed to even consider a pause in the knowledge that the Loan Charge will have a disastrous impact on many individuals and families.
“The only bits of this ‘report’ that are worth reading are the bits where it is acknowledged that the Loan Charge has been brought in so that HMRC can demand disputed liabilities from people without them having the right to appeal, plus the veiled admission that they did indeed fail to open inquiries and are now demanding tax for closed tax years.
“Not only does this show the reality of the motivation for the Loan Charge, to wipe away taxpayers’ basic rights to appeal, it also proves that the Loan Charge is retrospective: to try to pretend otherwise is as nonsensical as it is dishonest.”
The Loan Charge therefore has the ability to recoup money owed from previous tax years and the MP’s primary issue with the charge is how it forces people to retrospectively repay the loan. These fines can be devastating to those contractors who were unaware of the money they received as loans.
In many cases, these freelancers don’t have the money to pay the loan and are worried about the impending repayment. This contractor loan will affect tens of thousands of people who were unaware that their employer used these disguised loans to avoid pay as you earn and National Insurance contributions.
The APPG’s own inquiry into the Loan Charge invited written evidence from affected individuals, receiving over 500 submissions, and held three oral evidence sessions in Westminster. They heard harrowing testimony from the family of one individual who tragically took his own life:
“It was one of the most disturbing things I’ve heard since becoming an MP. The whole room was in tears or struggling to hold them back. The family were clear, the suicide letter was explicit. There was no question from the testimony that the direct cause of this poor man’s anguish and ultimate death was the Loan Charge,” declared Ruth Cadbury MP.
Both HM Revenue and Customs and the Treasury failed to attend the third oral evidence session, only informing the APPG they would be absent the day before the hearing.
The Treasury report has sparked a further dispute between the cross-party group of MPs and the Exchequer after the report included the apparently spurious claim that evidence relating to 70 taxpayers collected by the APPG, as part of its own inquiry and sent on to the Treasury for comment, failed to include consent for HMRC to respond to the individuals:
“The Chair of the APPG had volunteered a commitment, when meeting the Chancellor and the Financial Secretary, that these testimonies would all be provided on the basis that the taxpayers concerned would give their consent for HMRC to respond transparently to the many particular personal tax issues that they raised. Unfortunately, that commitment was not sufficiently met, and none of the submissions have been provided on that basis. The government is therefore not able to respond to the detail of those cases in this report.”
The APPG responded: “In fact the APPG sent 70 submissions to Ruth Stainer [HMRC’s Director General for Customer Strategy and Tax Design] and made clear that these 70 taxpayers had given permission to have their cases shared with HMRC. It was expected that HMRC would then write to the APPG, as discussed, on each one. HMRC have not written to the APPG about any of these submissions. This is yet more evidence of bad faith and in this case a downright lie that the APPG failed to do what it had agreed.”
The APPG have previously clashed with the chief executive of HMRC, Sir Jonathan Thompson, accusing him of “wilfully and deliberately” ignoring questions about Loan Charge suicides in an open letter to him written this month, and citing the Civil Service Code at him. A survey of affected taxpayers published by the APPG this month indicated that 40% of respondents had seriously considered suicide.
The APPG continue to press for a delay to the Loan Charge to allow for a proper, independent inquiry to take place. Their own inquiry is due to be published imminently and today they announced that they have secured a dedicated debate on the Loan Charge in the House of Commons main chamber next Tuesday, 4th April.
Update 20 May 2019: The Loan Charge came into effect this month which takes a one-off tax charge on disguised remuneration loans made on or after 6 April 1999 if the payments weren’t made before the 5 April 2019 deadline.
Sources:
http://www.legislation.gov.uk/ukpga/2019/1/section/95/enacted
