Julia Irvine 5 Apr 2019 03:37pm

MPs slam HMRC's behaviour over loan charge

MPs have written to Treasury financial secretary Mel Stride urging him to delay implementation of the loan charge after yesterday’s leak in the Commons chamber led to a debate on the issue being suspended

The letter – which has now been signed by 18 MPs – made it clear that, had the leak not happened, the MPs were hoping that he would have announced there and then that the government would be delaying the charge in the light of the huge mental stress thousands of taxpayers are suffering.

The debate, which was moved by Ross Thomson, MP for Aberdeen South and vice chair of the All-Party Parliamentary Loan Charge Group (APPG), was cut short by the increasingly loud noise of water gushing into the chamber from the Press Gallery.

However, by then the debate had been going on for more than two hours and it was clear from the 52 MPs who managed to speak before “rain closed play” as one of them quipped, that there was near unanimous cross-party support for the motion.

This called for an immediate six-month suspension of the loan charge – which comes into operation today, putting all related settlements on hold, and an independent inquiry into the loan charge conducted by an independent person who is not connected to government or to HMRC.

Many of the MPs had been contacted by constituents facing bankruptcy as a result of HMRC’s campaign to claw back tax from disguised remuneration schemes, dating in some instances back 20 years. If they don’t agree to settle their tax affairs by midnight tonight, they also face the punitive loan charge.

APPG vice chair Ruth Cadbury summed up the situation facing these constituents. “There is a 45% non-refundable charge on all loans advanced during the period unless the individual agrees to pay up front a figure calculated by HMRC – completely opaquely – and regardless of whether any such tax was legally due at the time,” she said.

“Anyone who has ever been employed through such a structure could face a retrospective charge in the 2018/19 tax year, which is about to close, payable by January 2020. All potential liability – it could be for many years – will all be rolled up into this tax year, whether or not somebody knows what their liability is or indeed whether or not they are even aware that they have a liability. That cannot be within the spirit of natural justice.”

She added that many had only been notified by HMRC that they owed tax in 2018 while others who had thought they had agreed and paid any outstanding tax had also received letters from the department.

Labour MP Andy Slaughter said that more than 200 people in his constituency were affected by the charge. The situation was unfair, he said, because their tax affairs had been fully declared on their tax returns. “HMRC was aware what was happening. There was no attempt to hide. To characterise this as tax avoidance retrospectively seems wholly unjust.”

Former Treasury minister Greg Hands said one of his constituents had been assessed as owing £300,000, while former education secretary Justine Greening said one of hers was still waiting to hear from HMRC but had estimated their tax bill could be as high as £230,000.

“There are a number of issues, but in the end it comes down to how we in this house and HMRC look at the concept of fairness in taxation,” she said.

“I think that HMRC has simply got it wrong and is striking the wrong balance… HMRC’s approach to the loan charge has been punitive rather than proportionate. For some constituents it has essentially grouped up to 20 years of charges and lumped them into one big sum that they are now being asked to pay.”

Conservative MP Laurence Robertson felt that there was a legal disjoint. “As I understand it, if someone were to seek redress, they can go back only six years, or maybe nine years if they have only just become aware of the problem, whereas HMRC is going back 20 years,” he said. “There is a big difference between how they are being pursued and how they can obtain redress.”

Labour MP Nic Dakin agreed. He said that he had been looking at HMRC’s briefing pack on the loan charge in which it declares that it has “never approved tax avoidance schemes”.

“I am not sure in this case whether I completely believe it, because when this law [the Finance Act 2017] was passed in 2017, it applied a retrospective tax going all the way back to 1999,” he commented. “Notwithstanding the trouble with retrospective law in general, 18 years is a very long time to disapprove of something but not say that or act to fix it.

“The reality is that by HMRC not speaking out or acting to prevent these loan schemes from being used for 18 years, while it did not give explicit approval, it certainly gave implicit acceptance.”

Hendon MP Matthew Offord told of a constituent who had been sent a bill by HMRC for £91,000 which was revised down to £41,000 when she challenged it.

Hers was not the only case. As Thomson pointed out, “It is deeply concerning that many of the demands sent to constituents have been miscalculated by HMRC and that must be addressed,” he said.

In the letter, the MPs urge Stride to listen to and act on the will of the house. But if he fails to do so, they warn, when the debate is rescheduled and concluded, they may push the motion to a vote to demand that the loan charge is suspended.

However, in a statement released today, a Treasury spokesperson said, “As announced at Budget 2016 and in accordance with the legislation, the loan charge takes effect from 5 April. Anyone who contacts HMRC by midnight 5 April with the genuine intention to settle their tax affairs and provides the required information will almost certainly end up paying less.

“We remain committed to ensuring that people impacted by the loan charge receive the support they need, and that individual cases are treated sympathetically in the light of individual circumstances.”