MPs call for review of ‘unaffordable’ loan charge

Victims of the loan charge were the centre of attention at a parliamentary debate, where MPs urged the government to launch an independent investigation into the charge and to focus on promoters instead of taxpayers

Over 40,000 people are affected by the loan charge and are facing up to six figure tax bills for unpaid tax calculated by HMRC after users signed up to schemes promoting payment through a mix of salary and loans, the latter which were unlikely to be ever repaid. In total, 60,000 individuals have been affected by the loan charge rules.

In a two and a half hour debate on Thursday, MPs were highly critical of the loan charge and the actions of HMRC, with strong support for an independent review of the current rules. But any changes to the loan charge were rejected by the Treasury minister, Nigel Huddleston, although he did admit that tax avoidance promoters were ‘parasites’.

Opening the debate, Sammy Wilson, DUP MP for East Antrim, told MPs: ‘This House is deeply concerned that HMRC has confirmed the suicides of 10 people facing the loan charge and that, despite the Morse Review, thousands face unaffordable demands, with the risk of further suicides.’

He also said that ‘HMRC has confirmed 24 cases of serious harm, including 13 suicide attempts’.

Wilson called on the government to ‘work with all parties to find a fair resolution and for a full independent investigation, including into the conduct of HMRC; and believes that taxpayer rights must be enshrined in law and enquiries closed after four years if HMRC fails to act’.

As chair of the APPG on the loan charge, Wilson has been a strong supporter of those fighting loan charge bills.

‘I say to the House - I do not think that I am being overdramatic when I say this - that we are looking at another Horizon scandal, and the parallels are frightening,’ Wilson said.

‘We have heard time and again in evidence to the loan charge and taxpayer fairness all-party parliamentary group of the disruption and disaster this has caused in many families.

‘Secondly, despite the fact that alarm bells should be ringing in the Treasury, no action has been taken. Indeed, some ministers have even refused to meet the group. Others have simply put out the party line and regurgitated the excuses of His Majesty’s Revenue and Customs for what is happening.’

He added: ‘We are now being told that the people who HMRC is chasing today are - to use its words - “serial tax evaders”.’

The government and HMRC consistently state that the loan charge relates to the used of disguised remuneration schemes. He cited a letter from a Treasury minister to the APPG that stated: “As you are aware, disguised remuneration schemes are contrived tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions”.

Wilson said: ‘It is almost like a warning: “Don’t be taking up these cases, because these are bad people that you are talking about.” That is exactly parallel to what we found with the Horizon scandal.’

Chris Stephens, MP for Glasgow South West raised the issue of the difference in how HMRC treats different taxpayers, including major corporates.

‘I agree with how the right honourable gentleman has introduced the debate. He mentioned the scale of how HMRC is going after people caught up with the loan charge. Is that not in stark contrast with how multinational companies are entering into sweetheart deals with HMRC, such as Google and Vodafone?’

Wilson was highly critical of the government and HMRC’s decision not to target scheme promoters.

‘It seems that HMRC is going after those whom it regards as easy targets. The promoters of the schemes have not paid one penny, despite the fact that they have made hundreds of millions of pounds from the schemes, have mis-sold them and have disappeared when there is any attempt to get at them.

‘The promoters are not being pursued and, indeed, HMRC has admitted that it does not intend to chase after the promoters, and yet individuals are being harassed to the point where many of them have taken their own lives.’

Conservative MP, Sir Robert Buckland, said the promoters operated in an ‘ungoverned space’. He added: ‘We have to not just focus on what has happened in the past, but look at what is happening now, where innocent people are being exploited.’

SNP MP, Gavin Newlands, said: ‘The simple truth is that HMRC failed to police this issue. Many people made HMRC aware of their involvement in the schemes and it took HMRC years to get back to them or even to look into the issue. That is one of the real crimes here.’

Wilson suggested that HMRC officials ‘are on commission for the money that they bring in through the loan charge’, but admitted he had ‘no evidence of this’.

He called on the Treasury minister to repeal the loan charge ‘because it is not fit for purpose and is having a detrimental effect’.

‘There are people who are suffering today because they are being battered by the cosh that HMRC officials are using on them to extract money that they do not have and which many of them do not believe they owe. I ask the minister to grasp this nettle and ensure that we do not have another Horizon scandal.’

The promoters of the tax avoidance schemes also came under fire, with Conservative MP Greg Smith saying: ‘It is outrageous that promoters have not been pursued.’

He added: ‘Checks and balances must be built into HMRC if we are to see justice for the loan charge victims, as well as for victims of any other scandal that might well come about.’

Conservative MP Iain Duncan Smith was one of many MPs that were highly critical of HMRC’s behaviour. ‘One thing that I discovered in government, and that I have constantly observed, is that HMRC is a very peculiar department. HMRC is unaccountable,’ he said. ‘The backdrop to this issue is that HMRC operates almost with impunity.

‘I have seen ministers come and go at the dispatch box who are told one thing by HMRC, leave their position and then come back and say, “I did not know half of the stuff that was going on.” I simply say that there is a problem with HMRC.’

He added: ‘HMRC still cannot justify the legal basis for pursuing individuals and not going after those who promoted the schemes.’

There was also criticism of the lack of legal recourse through tax tribunals, although the minister stressed that there was an appeals process.

Desmond Wayne, MP for the New Forest West, said: ‘It is a measure that cries foul against every tenet of proper legislation with, first, its retrospective aspect, and secondly, its taking away from our constituents the right to appeal to a tribunal with an administrative or quasi-judicial process to have their case fairly considered. It made HMRC both judge and jury in their case.’

There was strong cross-party support for an urgent review of the loan charge.

Darren Jones, Labour MP and shadow chief secretary to the Treasury, said: ‘Ministers, including the Prime Minister when he was Chancellor, routinely referred to the 2019 Morse review and asserted that there was nothing else to do. That review cannot and must not be the final word on the matter or a roadblock to getting a fairer solution for people who have been victims of bad professional advice and mis-selling.’

After a two-hour debate, Nigel Huddleston, financial secretary to the Treasury, who was only appointed last November, said: ‘There is no doubt that we have heard the strength of feeling on the issue. Of course, I stand at the despatch box as not only the minister but a constituency MP who has also had representations on these issues from my constituents.’

He told MPs that he had been asking many of the questions about the impact of the loan charge and ‘the approach and tone taken by HMRC’.

‘Tax authorities and tax ministers are never popular—it is the nature of the work—but I want to make sure that we act in a way that is reassuring, correct and fair to all taxpayers,’ Huddleston said.

He confirmed that he had conversations with Jim Harra, head of HMRC, telling MPs that ‘in the light of the Post Office scandal, about whether there are commissions or perverse incentives for people that may lead to distorting behaviour, and I have been reassured that there are not’.

Underlining the Treasury’s position, Huddlestone said: ‘The schemes were never legitimate; they were always tax avoidance, and therefore there was always a clear path that tax was owed.’

He added: ‘The Government recognise that there were areas where the impact of the original loan charge was disproportionate to its aims. We have listened to concerns raised by honourable members in the years since the loan charge was announced, and I have had conversations with HMRC about how it has, for example, endeavoured to improve the tone of communication with impacted individuals.’

Huddleston rejected calls for a review of the Morse report, stating: ‘I have heard the comments made, but I do not believe a case has been made for another review. I always stand ready to listen, but I think that review stood up quite well. I do not think anybody has impugned the integrity of Lord Morse, but that review was thorough and significant, and 19 of the recommended changes were implemented. It was a hugely impactful and very thorough review.’

Although he did not accept that tax avoidance promoters should be chased for recovery of the loan charge, he described promoters as ‘parasites’.

‘Promoters of tax avoidance schemes are parasites on the tax system - let us be in no doubt about that. They cause untold misery to the people they tempt into using those schemes, which almost never deliver the tax savings that were promised,’ he said.

Huddleston clarified that there was an appeals process, stressing that ‘this is not an area where criminal convictions are acted against the individuals’.

Loan charge debate, Hansard [18 January 2024]

Sara White |Editor, Accountancy Daily

Sara White is editor of Accountancy Daily...

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