The best hope for letting HMRC and taxpayers move on from the loan charge debacle? It’s HMT’s Lucy Frazer
My Christmas wonder is this. I wonder how many MPs sitting on the House of Commons Public Bill Committee in January 2018, when the Loan Charge was nodded through, would have thought, as we approach the end of 2021, that it would still be a live and deeply controversial political issue?
We are nearly four years on from that clear failure of parliamentary scrutiny, writes Steve Packham, spokesperson for the Loan Charge Action Group. We’re also on to a second prime minister and a third financial secretary to HM Treasury, yet what has become known as the Loan Charge Scandal continues to generate headlines, parliamentary questions and significant contractor interest.
What we do know, four years on from that Public Bill Committee, is first of all that HMRC and the Treasury’s predictions, made to parliament, are woefully wrong and secondly, due to the many revelations exposed by the Freedom of Information Act, that MPs on the Committee were seriously misled.
Here at the back end of 2021, the issue has most certainly has not gone away and it is striking that there have been two key interventions in recent week -- interventions that we hope may at last break through the usual templated responses from HMRC and the tired propaganda lines spouted by officials in letters, select committee responses and answers to parliamentary questions.
Two key interventions
First of all, The All Party Parliamentary Loan Charge and Taxpayer Fairness Group (APPG) wrote a letter to the new financial secretary to the Treasury Lucy Frazer, with 10 questions related to the loan charge, including on the lack of any credible legal basis for the charge. The way that the government, HMRC especially, but also the Treasury, have ducked questions and have given deliberately misleading answers is one of the most rotten things about the whole scandal, or the “Loan Charge Debacle” as HMRC’s CEO Jim Harra prefers to call it. This time, with such clear and incisive questions and from a parliamentary body, there must be genuine, honest answers (and if there aren’t, that will itself, expose yet more of the truth).
The second key intervention has been from a group of independent professionals from the tax and accounting sectors, writing to the chancellor (and Ms Frazer) with an outline proposal to resolve the loan charge. This proposal is something that we can confidently say will actually be in the interests not only of the thousands of families facing it, but also to HMRC, which cannot cope with the workload. The Revenue is also being bogged down by the intensifying scrutiny of the loan charge, and damaged by the increasingly enlightening revelations from correspondence they presumed would never be published.
The proposal, in our understanding, is for those facing the loan charge (and those who have already settled) to pay an affordable proportion of the tax that HMRC claim is due, but has never been legally proven to be due. This proportion, as well as being genuinely affordable, must reflect the reality: That the vast majority of those facing the charge were victims of mis-selling; that promoters and others in the supply chain are not being asked to pay a penny despite profiting significantly; and the fact that HMRC clearly failed to act at the time, neither adequately warning people nor shutting arrangements down that they deemed unacceptable.
We welcome this intervention and thank the professionals involved. We believe that any and all calls for a resolution to this mess are not only welcome, but actually in the interests of the government and HMRC, as well as for all those facing ruin, bankruptcy and mental breakdown.
Elephant in the room
It is notable that, both the APPG and the professionals have raised what perhaps is the real elephant in the room (not this time, HMRC’s regular use of contractors using arrangements that they claim were ‘always wrong’ despite signing off). That elephant is the PAYE Agency Regulations in Income Tax (Earnings and Pensions) Act 2003. If these regulations had been enforced correctly, there would never have been any need for the loan charge (or indeed for the IR35 off-payroll rules). Had those regulations been applied by HMRC, as they should have been, then the “employers” of contractors facing the loan charge should have been brought to account in respect of any PAYE deemed due and not the contractor.
Now, HMRC claims that they can ‘retrospectively’ apply yet another part of the tax code (referred to as Section 684), which permits disapplication of the PAYE rules. Yet, in the ongoing legal case known as Hoey v HMRC, it was noted at the Upper Tier Tribunal that the rules should not be able to be applied retrospectively, which of course is effectively what HMRC have claimed that they are able to do! This fundamental point, which not only undermines the entire case for the imposition of the loan charge, but also means that legally, HMRC should instead go after agencies.
We hope...
But the biggest hope now, in terms of a potential resolution, for all who want to see a way out of the impasse and a way to avoid the inevitable bankruptcies, breakdowns and suicides is Lucy Frazer.
The Loan Charge Action Group welcomed her to her role and hope that she will truly look at the whole issue with an open mind and objectively. To do so, she must reach out beyond HMRC and her own advisers who have become so embroiled in defending and misrepresenting the loan charge at all costs. Yet in the latest template letter from the Treasury, Ms Frazer states: “I have met with a range of officials, including the Chief Executive of HMRC and those responsible for direct engagement with the individuals affected.” So she has not met with any private sector experts or looked at the wider legislation. She must now do both.
We can – and do – but hope. We hope for some common sense, as much as for some compassion. In the end, denying reality comes back to haunt civil servants and ministers. We sense that Lucy Frazer may just have some genuine compassion and some common sense and, in the end, surely she does not want to be fielding Treasury questions in 2022 about many bankruptcies, about families torn apart and about yet more suicides. It simply doesn’t make sense from a public policy perspective.
We hope that the sector professionals may have at least sown a seed and opened a door. The Loan Charge Action Group remains ready and willing to engage with the minister, the Treasury and HMRC. Surely, with everything else this country has to currently face, now is the time to find a way to end this scandal and finally allow loan charge victims, families, the Treasury, HMRC, Lucy Frazer, Rishi Sunak and Jim Harra, to move on. Omicron suggests it may not be the happiest of New Years, but it is in Lucy Frazer’s hands to make it a less catastrophic one for thousands of UK families and we urge her to now take that opportunity.