After years of suffering, with victims fighting for justice and facing disastrous consequences due to the loan charge, on 18 January 2023 this matter was debated in the House of Commons after the Backbench Business Committee granted the debate. In this article I will lay down considerable points I have taken from the debate to which we need to pay attention and be aware of.
What is the loan charge? Individuals were paid in the form of loans instead of salary, through the Loan Remuneration Arrangements (LRAs) where the loan was never expected to be paid back. The charge comes through a retrospective legislation. When it surfaced that the schemes were not tax compliant, Ministers introduced the loan charge in the Finance Act 2017, giving rise to years of back tax.
Opening of the loan charge debate – setting the background
Sammy Wilson, DUP MP East Antrim, outlined in his opening statement and throughout the debate the effects of it and how this situation has progressed.
There have been 10 suicides, 24 cases of serious harm with 13 suicide attempts. All confirmed by HMRC. It is now clear that thousands of people that used this scheme were victims of mis-selling and that also some employers and agencies pushed employees to use them. Even so, HMRC is currently demanding the scheme users pay the disputed tax, not the promoters of such schemes that have made hundreds of millions of pounds. The victims are easy targets. Promoters have a way to defend themselves. They disappear.
The MP also pointed out that “the section 44 of the Income Tax (Earning and Pensions) Act 2023 deems agency workers to be taxable as employees of those agencies and that HMRC should have collected tax from agencies at the time.” He criticised HMRC for “transferring the liability to individuals” and “to be pursuing open enquiries for schemes before 2011 despite the Morse Review,” which now appears was not entirely independent. He noted that “HMRC is seeking additional payments from those who settled and that the Morse Review was limited and not genuinely independent of HM Treasury and HMRC.”
With no doubt this scandal has been referred as another Horizon Scandal and Mr Wilson stressed that “despite the fact that alarm bells should be ringing in the Treasury, no action has been taken. Indeed, some Ministers have even refused to meet the group. Others have simply put out the party line and regurgitated the excuses of His Majesty’s Revenue and Customs for what is happening. We are now being told that the people who HMRC is chasing today are – to use its words –’serial tax evaders’. That is exactly parallel to what we found with the Horizon scandal.”
Alarming points I have learned from the debate
All the MPs in the chamber were, not surprisingly, in agreement. Chris Stephens, SNP MP Glasgow South West, raised the fact that “multinational companies are entering into sweetheart deals with HMRC, such as Google and Vodafone, which is in contrast of how HMRC is going after people caught up with the loan charge.” Sir Robert Buckland, Conservative MP, South Swindon pointed out why there is no regulation for promoters. “They should at least come under the control of the Financial Conduct Authority.”
While Mr Wilson was addressing the role of HMRC’s approach, I was flabbergasted to learn that “HMRC employed people on contracts to do work for it, knowing that those people were being paid in that way, and never challenged it” and that all of this originated due to the flaws of IR35. The MP cited an example from a lady,
“I was employed by an IT consultancy, the contractor was working for HMRC and the only way I could get the job was to be paid through one of these schemes. I did not particularly want to, but I wanted the work, so I had to enter into the scheme.”
It was infuriating to learn the nuances and games around all of this. With the introduction of the loan charge in the Finance Act 2017, HMRC had the power to decide the tax an individual was liable for and people could not challenge it in the normal way tax disputes can be dealt with, through either tribunals or courts. Employers using such schemes could employ people without paying employment taxes, and therefore not having to worry with pensions or holiday pay!? And talking about schemes, the largest promoter of these was AML Tax (UK) Ltd, whose CEO is Baroness Michelle Mone’s husband.
HMRC’s modus operandi
As Gregory Smith, Conservative MP for Buckingham, questioned “How can a body of the state, HRMC in this case be autonomous in being judge, jury and executioner at the same time?”
John McNally SNP MP Falkirk pointed out,
“HMRC rules determine that their employer—be that the agency, the umbrella company or another body in the supply chain, or the end client itself—was liable to deduct the correct amount of PAYE and pay that to HMRC at the time, before paying the worker their salary. These companies simply did not do that. HMRC was well aware of the arrangements and, as has been said, did not pursue for tax any of the entities as the workers’ employer. HMRC was also well aware many years down the line that it was legally out of time to do so.”
Another relevant point raised, this time by Neale Hanvey, MP for Kirkcaldy and Cowdenbeath, and leader of the Alba party. It was the fact that HMRC pursued the loan charge customers for 100% of the tax, plus interest, and accelerated payment notice penalties and inheritance, when 80% of the £3.4bn had already been recovered between the Budget of 2016 and the end of March 2022. Even more, HMRC was fully aware that customers had already suffered a 15% to 20% deduction on their earnings. Additionally, why HMRC continued to pursue customers with loans before December 2010, given that Morse already pardoned those with no open inquiries on the basis that the law was not clear.
People are having to pay more tax than they actually earn and the back charges are only estimates from HMRC, as one victim mentioned to one MP. Is it due to the fact that “HMRC also uses an apparently bombproof system from Fujitsu”, as Andrew Bridgen, Independent MP for Noerth West Leicestershire, pointed out?
I was deeply surprised when I found myself agreeing with Sir Jacob Rees-Mogg, Conservative MP for North East Somerset. He said,
“HMRC did not think there was anything wrong with these schemes early on. How do we know that? It employed people using these schemes. So we are saying either that HMRC is so incompetent that it has no idea about the basis on which it is employing people, or that actually, because it saved some money, it thought these schemes were licit. The other thing we know is that constituents of ours sent in tax returns acknowledging that they were using these schemes, and HMRC did not question them.”
Then, in a panic, worried about the tax receipts that were coming in – 2010 is an important date when tax receipts were very low and the country had an enormous deficit – a squeeze gets put on, and that squeeze becomes retrospective. But retrospective legislation is basically unconstitutional except in extraordinary circumstances. Whenever there is any retrospective part of legislation, it has to be specifically approved and cleared by the Attorney General before it can be brought before the House. Why is that? It is to safeguard the constitutional right that people know the basis of the law under which they are operating.”
HMRC – a black box in the deep sea?
Sir Iain Duncan Smith Conservative MP Chingford and Woodford Green said; “One thing relevant to this debate that I discovered in government, and that I have constantly observed, is that HMRC is a very peculiar Department. HMRC is unaccountable; it is the only Department that does not publish accounts every year, so there is no scrutiny of moneys lost or failed to be gained. HMRC acts independently, with many civil servants going on radio and television, not reliant on Ministers to take the responsibility for them.” How this can be possible??!! HMRC operates practically with impunity!! HMRC is protected by the Treasury!
According to Sir David Davis Conservative MP Haltemprice and Howden, there is one body that can call upon HMRC. This being the Public Accounts Committee. “They should look into the documents associated with those early contracts and see why they were done.” As rightly put, what HMRC is doing is what oligarchs do through SLAPPs.
As Sir Robert Buckland Conservative MP South Swindon mentioned; “It (HMRC) was the product of a forced merger of the Inland Revenue and Her Majesty’s Customs and Excise by, I think, Gordon Brown and the Labour Government. The merger was rushed – they were pushed together – and HMRC has never enjoyed the proper scrutiny and ministerial involvement that it should have received.”
Constituents have raised the barrier in obtaining documents and the avoidance of FOI obligations by the HMRC.
Unison voices among MPs in the debate and conclusion
An independent public inquiry must happen. Also there has to be a motion to ban retrospective taxation. Ministers should commit to looking at the inflationary costs that are added on to the taxable sums. There is frustration, powerlessness coming from the constituents towards the Government bureaucracy. One can only hope that MPs won’t see themselves sitting in the House in future having the same discussion due to platitudes from the Minister and lack of actions.
We, as tax payers, should know that there is a 12 month period that a tax return remains open and a seven year period that we should keep records. Therefore how has this retrospective legislation been passed?
It is not surprising that whenever I have to fill in my self assessment tax return, I get extremely nervous. One click on one fancily-written obscure option or on another, the figures get completely changed.
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