Treasury minister slammed over 2019 Loan Charge ‘untruths’

The competency of a Treasury minister has been called into a question after a regulation affecting tax arrangements as far back as 1999 was described by him as “not retrospective.”

Mel Stride, who made the comments to MPs, also erred when he said the so-called ‘2019 loan Charge’ affected arrangements which were “not legal when they were entered into”.

Despite being nodded along to by Philip Hammond, the chancellor, Mr Stride’s claims have been widely denounced since he made them. He even faces a written request to retract them.

'Supreme Court says otherwise'

“It appears Mr Stride thinks that illegality has occurred, despite the Supreme Court and HMRC always saying otherwise,” said Graham Webber, boss of tax firm WTT Consulting.

“The tax charge arises in a prospective manner…[but] it is clear that it has retrospective effect by taxing amounts which are otherwise closed for recovery through the normal recovery methods for HMRC.”

He added that any suggestion that the 2019 loan charge (unveiled at Budget 2016 yet affecting loans dating back to 1999 from April next year), was not retrospective, was “not accurate.”

As to Mr Stride’s claim that taxpayers broke the law when entering into the arrangements, Mr Webber sounds as if he regards that as an even more outlandish than saying the rule is not backdated.

'Alarming'

“This suggestion [that the arrangements were not legal when they were entered into] has not once been claimed by HMRC and it is alarming that the minister is now conflating the lines between legality and illegality in such a fashion.”

A former tax official himself, Webber also said: “There has never been any mention in any taxation provision that a loan from an offshore entity is taxable as income, nor is there currently.”

“How, therefore, if there is no mention of the provision in legislation, can the arrangement have been illegal at the time the arrangement was entered into?”

'Dangerously false'

In a letter to Mr Stride, the Loan Charge Action Group blasted: “You have made what is a dangerously false claim by suggesting that law-abiding citizens…were somehow doing something illegal.”

“The schemes were legal when entered into then and are still legal now, and there has never been any suggestion that they were or are not.”

In line with the rejection of Mr Stride’s ‘illegal at the time’ comment, tax experts point out that it was not until the Dextra (2005) and Sempra (2007) cases until any clarity on the taxable effect of a loan made from an offshore trust emerged.

'Unchecked'

However it is not the first time that the minister has come in for criticism.

On the eve of Autumn Budget 2017, Mr Stride said the private sector was able to pay its workers through PSCs “unchecked,” seeming oblivious to the IR35 legislation of 2000.

Around the same time, in a bid to present IR35 changes in the public sector as successful, he said that 90,000 extra contractors making ‘inside’ declarations ‘indicated increased compliance.’ In February 2018, HMRC explained that, on its own, the indicator was not reliable.

“For the minister responsible for this already distressing policy to be saying things that are fundamentally untrue is deeply worrying and distressing,” the LCAG have told Mr Stride directly.

“You must correct the record as a matter of priority so that it is clear that you accept you were wrong to even suggest that the many [affected] individuals, including our members, have done anything illegal.”

The group accuses the Treasury minister of presiding over an additional, third untruth (on top of firstly saying the charge is not retrospective, and secondly saying that the affected arrangements were illegal at the time).

In particular, it takes issue with the package of reforms containing the Loan Charge being described in the department’s impact assessment as “not expected to have a material impact on family formation, stability or breakdown.”

'Maximum amount, not right amount'

Meanwhile WTT Consulting has identified a fourth untruth. “Mel Stride has [claimed] in his response [that] the loan charge is there to ensure individuals pay the right amount of tax.”

But the tax advisory says, “the Loan Charge acts by taking loans received in historic years and taxing them as income on top of current year income.

“[And] by taxing a collection of loans received in various years as one lump sum the effective tax rate is considerably higher than if taxed in the year received".

“[So] the charge acts in a punitive way and does not ensure the right amount of tax is paid but rather the maximum amount of tax possible.”

Worried about  implications beyond tax, a downbeat Mr Webber reflected: “In an environment where the [Treasury] minister [Mel Stride] is afforded the opportunity to make inaccurate statements is the House of Commons with no rebuke, the democracy of the UK justice system is compromised and will surely lead to considerable damage to the perception of the UK as a leading nation in the world’s democratic institutions.”

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