2019 Loan Charge debate fails to win a delay or review

Heartfelt pleas to Treasury minister Mel Stride for the government to both delay Loan Charge 2019 and commission a judge to review it have been rejected in the House of Commons.

The rejection means that despite such a motion by the Loan Charge APPG having now been accepted, and even though 160 MPs want a six-month delay, the charge will stay in effect.

“I’m disappointed that there will not be a delay or an independent review of the loan charge,” said the APPG’s vice-chair Ross Thomson MP, speaking after the Treasury’s rejection.

“Fundamentally [this] has been about the retrospective effect of the loan charge. People -- our constituents -- who have acted in good faith and now face enormous [tax] bills.”

'No hallmarks of avoidance'

Stephen Metcalfe MP yesterday illustrated this ‘good faith’ with an account about a constituent -- an IT contractor, who checked with HMRC if his scheme was compliant.

Those checks by HMRC in 2012 returned “no hallmarks of avoidance”, so the contractor kept on the scheme and “dutifully declared” it on his tax return, without any initial challenge.

It is this “devastating” false sense of security, hinted Mr Thomson in his commons speech, that HMRC lulled 50,000 contractors into, only 24,000 of whom are now said to be settling.

His fellow Tory MP Mr Metcalfe said: “In failing to act back in 2012, when it had the opportunity, HMRC denied my constituent the opportunity to depart the arrangements and seek an alternative solution to his payroll needs.”

'Destroys quality of life'

Pointing to ‘devastation,’ the MP quoted what his constituent told him. “If the loan charge is not delayed and comes in as it is, it will destroy my quality of life and that of my family.

“It may well prevent me from working and lead me into bankruptcy. It has already caused me to suffer extreme stress and is causing huge anxiety for my family.

“If the government ploughs on with this retrospective legislation, it will be responsible for devastating the lives of families across generations.” 

'Pocket-Al Capones'

Such HMRC customers caught by the loan charge “don’t object to the fact that since 2012 it has been found that the schemes are wrong,” according to Labour MP Ruth George.

“What they object to is the fact that they are being sought for payments before that time”. And one contractor ought to object, she added, after HMRC gave him just three days to settle – while he was overseas.

“These people are not sort of pocket-Al Capones”, said Adam Holloway MP. “They are self-employed people, contracting at different entities, paying their own pensions without the protections of regular employment and also trying to avoid the complexities of IR35.” 

As many are in their latter working years, they are also people who cannot simply take out loans to settle their tax bills, despite HMRC proposing that some should, Ms George said.  

“HMRC, in terms of how they’ve conducted themselves, have fallen woefully short in terms of the standards that we should expect”, Wes Streeting MP told the commons debate.

“HMRC knew about these schemes for many years. And year after year, in successive tax returns…signed off those returns…[and] failed to take action”.

'Feels wrong'

Meanwhile, in his comments, Mr Metcalfe said that because HMRC’s approach and treatment of taxpayers “feels wrong,” there was “a need for a pause and a full proper review.”

Another Conservative Mr Holloway echoed: “[I] support a delay in the implementation of the loan charge to allow for an independent tribunal to assess the issue”.

Labour MP Marsha De Cordova agreed, saying the Treasury should “commit to actually suspending the [charge] for six months” and “more importantly,” to establishing a “judge-led independent inquiry.”

'Consequences'

She explained the impact on her constituents: “The burden of paying…[HMRC] is causing…great distress including mental ill-health.

“One constituent told me of her fear [of] what the charge means because she will have to sell her home. Another risks going bankrupt, and another constituent just broke down in tears at my recent surgery, fearing the consequences the charge will have”.

But despite all the life-changing accounts, and the support of the numerous parliamentarians, including via the loan charge EDM, Mr Stride was unmoved when he responded after the MPs’ submissions.

'It's only right'

Refusing more than three times to be interrupted by fellow MPs wanting to object or ask a question, and blaming his speaking over them on the session’s clock ticking down, Mr Stride said:

“I appreciate that facing any tax bill is unwelcome. But it is only right that we deal with disguised remuneration.

“And where we fail to do so, then we are effectively saying to the 99.8% of other taxpayers who have not been involved in these schemes that we expect them to pay more. And we deny our vital public services; our nurses; our teachers, our doctors, our police and many others, the funding that they deserve.”

'Whitewash'

The minister was heckled as “ridiculous” for refusing to give way and take questions (he did so only once), and his statement prompted another MP to bellow, “Sounds like a whitewash.”

The Treasury said it would expand HMRC’s support for customers with ‘additional needs’ within which it will give loan charge customers “first priority”, and will set up a unit specifically for settlements under the charge.

No change of tack on Loan Charge 2019 -- despite the vast cross-party support for the government to do so – let slip last month, when Mr Stride told Mr Thomson in a letter:

 “The government does not believe that the charge should be delayed as it remains the right way to tackle the use of DR avoidance schemes and ensure scheme users pay their fair share.”

On March 11th, the minister also wrote: “The charge will apply in the 2018/19 tax year and individuals will have until 31 January 2020 to pay their liability in the normal way through the self-assessment process. As necessary, HMRC can agree flexible payment terms beyond that point.”

'We aren't going away'

Reacting yesterday, Mr Thomson said that for him, and many other MPs, the loan charge represented “a clear breach of the rule of law and natural justice.”

“These are ordinary people we are talking about, not the mega-wealthy, ordinary people”, he emphasised, referring to HMRC customers who the department deems now owe the tax.

He vowed: “Those of us who have been campaigning on this issue, against the loan charge, are not going to go away any time soon. And we will keep engaging on the issue and we will keep campaigning on this issue.”