What 2019 Loan Charge officials tell you thrice still isn’t true

Through the Looking Glass (1871) has already proved a helpful allegory in understanding what the taxman is up to with IR35 ‘blanketing.’

But we must now turn again to Lewis Carroll, this time his Hunting of the Snark (1876), to plot the latest twists and turns in the course of the divisive 2019 Loan Charge, writes Graham Webber, director of tax at HMRC enquiry specialists WTT Consulting.

So with advance apologies to the word play and logic master, I believe that Carroll’s predictions of the Snark being a dangerous ‘Boojum,’ capable of swallowing sailors whole, might find a comparison with the Lordships and now a cross-party group of MPs, trying to re-establish the rule of law in taxation and fairness in how people are treated.

Like the sailors in Carroll’s longest poem, their Lordships are pursuing their target very hard, and that target is HMRC and their masters. The peers asked the tax department for information on how many contractors they engaged and how many used disguised remuneration schemes. Straightforward enough you might think.

On behalf of the Revenue, a Ms. Stanier has responded.

“The Sub-Committee have asked whether any current or former HMRC contractors have used disguised remuneration schemes,” she acknowledged in a letter this month, responding to a peer.

She followed-up, seeming to respond: “HMRC has never participated in disguised remuneration schemes when paying its employees or contractors.”

Well, the eagle-eyed will notice that this is not actually a direct answer to the question, above, that was posed and that she acknowledged was posed.

So on top her wonderful title, ‘Director General, Customer Strategy and Tax Design’ -- whatever that actually means, she is clearly articulate in double-speak. She is also clearly a very senior HMRC officer. I’m going to assume therefore, unless advised differently, that she is capable and authorised to make her own decisions and is completely up-to-speed with HMRC’s policy, history and future intentions.

We have pointed out the disconnect between question and answer to their Lordships. We have also mentioned to them that there is a company, owned by the government, whose directors are senior HMRC officers and which is registered at Companies House. It’s detailed here.

An examination of the accounts reveals that a good percentage of their full-time workers are contractors. Has HMRC applied the IR35 rules from April 2017 which claim to bring the ‘90% non-compliant’ contractors into IR35? Well in April 2017, they had 400+ contractors. In March 2018, close to 250 contractors. Now, I confess to not being a statistician but I would have thought 10% of 400 is 40?

Evidently, HMRC is prepared to ignore the rules that Parliament bid them follow when it suits their budget or perhaps -- if the anecdotes we consistently hear are true – when contractors would otherwise walk away, part way through the project. If that is the case, then the hypocrisy displayed in their response to their Lordships, is just as fantastical as the search for the fictional Snark.

Thankfully, and nudged on by us, their Lordships are having none of this nonsense (ironically, Carroll was a writer of so-called ‘nonsense’ poems, and The Hunting for the Snark is his most famous). So they have pressed HMRC again. A persistent Lord Forsythe’s letter is here, in which he quite astutely points out to Ms Stainer:

“You did not say directly that no current or former HMRC contractors have used disguised remuneration schemes.”

Given that peers on his Economic Affairs Committee have already expressed their frustration at Treasury financial secretary Mel Stride’s refusal to appear before them in his role as having oversight of HMRC, I hope that they will brook no dissent from HMRC’s civil servants. This refusal of Mr Stride was, to our knowledge, given on absolutely no grounds at all.

The hunt of the Snark then moved to the Westminster Hall where Steve Baker MP secured and hosted a debate on the loan charge. A debate that quickly stepped outside the limited remit to discuss the appalling treatment of contractors.

This debate saw over a dozen MPs of all colours step up to condemn retrospection and assert that the rule of law must apply in all matters and that where retrospection applied to tax, (a principle roundly considered to be abusive by one Philip Hammond in 2005), it set some very dangerous precedents indeed.

MP after MP pointed out real stories from their own constituents. I will say that we have seen far worse. Time and again, the failure of HMRC to act against promoters, many floating around the tax haven harbours of this world on a yacht that you and I have both paid for, was criticised. Time and again, it was submitted that employers should carry the tax bill.

John Glen MP, was thrown to the Boojums in this debate by Stride and Hammond who were “required” in the House of Commons for a debate on the Finance Bill (which continues the unwarranted attack on contractors). He fought his corner, but collapsed under the final straw of trying to separate retroactive and retrospective. He was sneered at, chortled at and jeered.

Glen claimed that “many” employers were being chased by HMRC. We know from an FoI request that HMRC issued 900 PAYE assessments following their victory in ‘Rangers.’ Of these 700 are under appeal. I have no corresponding data to cite, but I estimate that a very high proportion also no longer exist, or have any assets worth anything near the PAYE bill.

There is also Glen’s claim that HMRC have secured one judicial decision against employers and four more were sub judice. We work in this area – some might say we are specialists -- but we cannot identify a decision being made. Glen may have been referring to the Rangers case, which is not a contractor loan scheme, being a corporate EBT arrangement. If that is the case, then can we expect Ms Stanier to be totally candid and plain-speaking when her political masters set such a rickety example?

And while it is all a bit of an inconvenience for me that the players involved in this process do not have names beginning with ‘B’, (purely because that would have made my references to the Boojum-featuring poem more valid), I’m forced to the conclusion that the mysterious Snark remains unfound, despite their Lordships and a group of our elected representatives  doing their utmost.

As many literary fans will know, Carroll’s crew never found the creature, other than perhaps ‘the Baker’ who disappeared after claiming to have captured it -- before being claimed by the Boojum -- never to be seen again. I wish Steve Baker MP a better result, and commend his enthusiasm and determination to wrest control of the law away from the unaccountable HMRC.

It is remarkable that Carroll never really explained what his poem was about. Various luminaries have had a go at explaining it, none of them able to really grasp it enough to make a convincing case. Likewise the loan charge and related policy. Stride has had a go, Glen made a decent but failed attempt and HMRC CEO, Jon Thompson, last week repeated the claim that the use of loans was not “legitimate”, this time in responding to the Treasury Committee inquiry into HMRC’s annual report (specifically, question 231.)

Oh, and all three of these officials repeated the Revenue’s line -- that no serous tax commentators accept -- that the 2019 Loan Charge is not retrospective. Note, that’s a charge which was conceived a few years ago but which affects loans as far back as 1999.

Once again, Carroll’s 1870s poem can guide us, notably: “I have said it thrice: ⁠What I tell you three times is true." Only in 2018, and with this trio of officials, it probably isn’t.