Hammond hits out at 2019 Loan Charge contractors

Philip Hammond has fired a broadside at 2019 Loan Charge contractors, saying he is “astonished” to even be questioned about whether they owe tax retrospectively.

Facing queries about his Budget 2018, the chancellor told MPs on the Treasury Select Committee that such contractors “imposed an unacceptable burden on all other taxpayers.”

Clearly caught off guard by being asked about the loan charge (it did not feature in the Budget), Mr Hammond had to be directed by a Treasury official to a pre-prepared document.

From which the chancellor all but read: “My understanding is that HMRC’s position has always been that tax on these payments could not be avoided by describing them as loans.”  

'Evasion'

Mr Hammond also said that the Revenue had ‘always been clear’ that “seeking to avoid payment of income tax through the use of loans” constituted “tax evasion”.

Graham Webber, of tax dispute specialists WTT Consulting, has already found fault with Mel Stride MP for making alleged 'untruths' about the 2019 Loan Charge. It seems the chancellor is to join him.

“I invite him [Mr Hammond] to prove this [that HMRC has always been clear that the use of loans in an arrangement to pay remuneration constitutes evasion],” Mr Webber said.

“As for ‘evasion’, that's illegal. One assumes therefore that those who designed, sold and administered such schemes can expect a knock on the door from the police?”

Such action by the police should (if the activity is illegal as the chancellor claimed), be followed up with a “confiscation order for the billions in profits” that the loan providers made.

A former tax officer, Mr Webber also said: “Or are we to assume that the users of such schemes, often duped…will remain the primary targets of HMRC's retrospective tax charges?”

'Astonished'

The answers of Mr Hammond to Labour MP Alison McGovern, who asked about the loans and the legal position when they were drawn, suggest the assumption is a safe one to make.

“I’m astonished by this line of questioning,” the chancellor told her, clearly rattled. “These are people pretending to make loans for themselves from their companies.

“[These are] loans that they have no intention of ever repaying and then expecting not to have to pay any tax, even though they have enjoyed the money and been able to spend it as if it were income.”

'Appalling'

Mr Hammond's deeming of the loans as 'evasion' comes after HMRC used a guest spot on ContractorUK to raise awareness of the loan charge but never mentioned ‘evasion,’ not once.

"It is shocking and appalling that the chancellor of the exchequer has made a false statement", said Richard Horsley of the Loan Charge Action Group (LCAG).

“The fact is that Loan Charge arrangements were legal, which is why the Treasury had to introduce retrospective legislation".

The group pointed out that "seeking to minimise tax within the law" is not illegal.

"This is wholly different from tax evasion, which is a crime," Mr Horsley said. "In deliberately and wrongly calling loan charge arrangements tax evasion, he [Mr Hammond] wrongly criminalises tens of thousands of hardworking people who never broke the law."

'Grossly unfair'

But seeming to later backtack from accusing them of illegality, the chancellor said: "[What 2019 Loan Charge contractors did] seems to me to be grossly unfair and something that imposes an unacceptable burden on all other taxpayers.”

Cut off by Ms McGovern pointing out that “lots of people” will disagree with him, a less energised chancellor concluded: “It’s quite right that it is sorted out.”

Robert Venables, a leading tax QC, reflected: “The statements by the chancellor were completely misconceived and plumb wrong, as well as highly defamatory of many innocent people.

“[Mr Hammond] is merely a politician and not a tax expert. In these matters, he is literally just another ignorant politician. As chancellor, he ought to have available to him the expertise of competent civil servants." 

'Completely misunderstood'

Although that implies criticism of the official at the hearing who flanked Mr Hammond, Dan York-Smith, the Treasury's director for strategy, planning and budget, the barrister lay the blame firmly with Mr York-Smith's boss. 

“The chancellor has completely misunderstood the circumstances of those on whom HMRC is trying to impose the 2019 Employee Loan Charges," Mr Venables said.

"The loans were loans and not outright payments which the parties fraudulently pretended were loans. If there really had been outright payments disguised as loans, then they would already be taxable and no further legislation would be needed.  

"HMRC is seeking to impose the 2019 Loan Charges precisely in those cases where the loans were genuine loans. They are seeking to tax the borrowers as if they had received not loans but outright payments. [So] like the chancellor, 'I am astonished.'"

'Laid down in statute'

At the hearing, Labour's Ms McGovern got under the skin of Mr Hammond early on when she asked, at the outset of her loan charge questions (at 18:27 into the hearing), “what on earth” he is doing about the loan charge, given what the chancellor said in 2005, specifically:

“A taxpayer is entitled to know with certainty, be it an individual or a multinational corporation, what he may or may not do in planning his tax affairs. He is entitled to expect that his treatment be laid down in statute, not determined by administrative fiat.”

The LCAG's Mr Horsley said: "We call upon all decent MPs to slam the chancellor’s shoddy attempt to rewrite the law and to mislead people, including MPs. It is simply not acceptable for the person running the economy to make false statements and he must be forced to correct the record." 

Editor's Note: Related --

Tax charity issues 2019 Loan Charge helpsheets

2019 Loan Charge Group condemns HMRC's 'sick joke'

Contractors' Questions: How do I know if I'm in a loan scheme?