The Treasury has been forced to agree to review its controversial 2019 loan charge proposals, which are designed to tackle disguised remuneration, by the end of March after a cross-party group of MPs were successful in pushing through an amendment to the Finance Bill
The amendment, new clause 26, was tabled by Ed Davey, the LibDem MP for Kingston and Surbiton and was signed by 38 MPs with more giving their support during the parliamentary debate.
The loan charge, due to come into effect in April, has attracted considerable controversy as the regulations give HMRC powers to impose a second taxing point for historical schemes. This means the charge will affect anyone who used a loan scheme, typically via an umbrella company, and who has not paid the intended amount of tax over the last 20 years. HMRC has indicated it expects to protect around £3.2bn in tax by tackling such avoidance schemes.
A House of Lords report from the economic affairs committee published in December was heavily critical of the plans, saying: ‘HMRC appears to be prioritising recovery of tax revenue over justice by targeting individuals, rather than promoters (who could be considered more culpable), so it can more easily recover liabilities.’
The committee said HMRC had failed to make its position on such schemes clear at an earlier stage and had also not communicated adequately with those affected. There were particular concerns about individuals who faced severe financial hardship as the result of claims for back tax and penalties, with suggestions unrepresented and lower income taxpayers were disproportionately affected.
Lord Forsyth, chair of the economic affairs committee, said: ‘We took some disturbing evidence on the government’s approach to the loan charge. This is devastating the lives of middle- and lower-income individuals, from the private and public sector (including the NHS) who used disguised remuneration schemes, in many cases being required to do so by their employers. The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry.’
Davey’s amendment sought initially to remove the retrospective element of the loan charge, but this did not happen because the government did not table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill.
However, Mel Stride, financial secretary to the Treasury, has agreed to a review which will assess the impact of the loan charge.
Davey said: ‘This review is about an important tax principle. The government are in effect in breach of the rule of law with the retrospective nature of their loan charge.
‘And the unfairness of that has brought misery to thousands of people.
‘While Ministers have listened, the review that’s now been established must respond to the concerns of MPs across the House.
‘Treasury Ministers have a duty to respond seriously and substantively.’
Steve Packham, spokesperson for the campaigning group Loan Charge Action Group (LCAG), said: ‘Many individuals facing life-ruining bills for tax that they do not believe they owe for schemes that were always legal now have some hope that this draconian retro-tax grab will be halted.
‘The review, though, must be a genuine one and not a whitewash by the Treasury, who have spent months misleading MPs and covering HMRC’s failures. If it is genuine, like the recent House of Lords report, it will expose the reality of this damaging and unfair measure.’
Phil Manley, partner at DSW Tax Resolutions and a LCAG campaigner, said: ‘Despite being forced to concede defeat, it was an appalling and utterly ungracious response from Mel Stride. He conceded to having a review, but then tried to pre-empt its conclusion, parroting the same misleading information the Treasury have been peddling for months.
‘As he knows full well, but again deliberately misrepresented, the Rangers case says employers are liable, not employees. He also continues to claim that the schemes were defective, but he knows that this is meaningless and has no basis in law, especially as he also knows the schemes were legal at the time.’
Separately, the Low Incomes Tax Reform Group (LITRG) is urging low-paid workers affected by the 2019 loan charge to consider contacting HMRC to settle, after HMRC statistics revealed only 25,500 out of about 50,000 people it suspects had their financial affairs managed by offshore ‘umbrella’ schemes have come forward to agree a repayment schedule.
Victoria Todd, head of LITRG team, said: ‘It seems our fears about a lack of engagement and understanding of the loan charge among workers are being realised. We urge those who may have taken part in a disguised remuneration scheme to consider coming forward. Time is running out for workers to settle with HMRC before the loan charge applies on 5 April 2019.’