17 Jul 2019 03:06pm

Loan charge repayments “death over five years”, says Baroness

Financial Secretary to the Treasury Jesse Norman has faced a grilling from the House of Lords’ Economic Affairs Committee over the controversial loan charge

At yesterday’s hearing, he had to contend with criticisms from their lordships ranging from the help on offer from HMRC for those taxpayers caught by the charge to the role played by local authorities in encouraging the use of disguised remuneration schemes.

Baroness Kramer questioned the five-year period given to repay the loan charge, saying that it “allowed death over five years, rather than death over three”

Baroness Kramer was disparaging of his promise that HMRC was trying to improve communication with those affected, stating that she hoped he would be looking at the “quality” of what was, in most people’s eyes, a “limited assistance programme”.

Norman told the EAC that he would be making a series of announcements aimed at helping with concerns over the charge, one of which was a commitment that HMRC would “not apply the loan charge to a tax year where an inquiry was closed on the basis of fully-disclosed information”.

The action, which initially seemed well received by those attending the EAC, drew ire from Baroness Kramer.

She stated that those that didn’t have independent financial advice at the time would not have been aware of the process and therefore the most vulnerable “won’t be able to take advantage of that change in direction”.

Despite noting that she appreciated the “change in direction”, Baroness Kramer said this was “not a complete answer to this issue”.

Norman denied this was the case, defending the terms and suggesting that the “harsh public rhetoric” needed to be separated out from the reality.

He reiterated that those who could not pay would not be pursued past the point they could not afford. He added that, to his knowledge, HMRC had not yet bankrupted any individual although “that may in due course come”.

When asked if the rules on closed years would be applied retrospectively to people who had already settled, Norman was unable to answer definitely.

However, he explained that there could be some scope to revert even following a settlement, and that the key point was “on the basis of fully-disclosed information”.

Norman also clarified that HMRC “is not going to tax the same income twice, and said that there would be a “more collaborative approach” with those who may be affected by the charge, which would draw on “the expertise of the Chartered Institute of Taxation and the ICAEW”.

The committee also raised the issue of local authorities, and the extent to which they were culpable when entering into arrangements with third parties relating to disguised remuneration schemes.

Some criticised the manner in which local authorities had acted, and Baroness Bowles of Berkhamstead said that “local authorities are not absolved from the actions they take, simply by having done it through a third party” – a point which Norman dismissed.

“I have not for one second suggested that local authorities are not morally culpable in situations where they may have failed to check whether someone is taking on employees and acting in an abusive way,” he said.

Rather, he explained that his previous comments along these lines had merely been aimed at answering questions about the meaningful distinction between promoters and employers.

Earlier this month, both conservative party leadership hopefuls Boris Johnson and Jeremy Hunt promised a review of the controversial HMRC policy.

 The legislation came into effect on 6 April and applies to anyone who used a so-called disguised remuneration scheme, adding a 45% non-refundable charge on all loans advanced through the schemes dating back 20 years.

Yesterday, former Treasury minister Baroness Neville-Rolfe called for reform to the business tax system, saying that a simpler approach could have “avoided some embarrassment” and referring to the “wretched loan charge fiasco”.

 The MP for Hereford and Herefordshire, Norman succeeded Mel Stride as paymaster general and financial secretary to the Treasury in May.