In a letter to Sir Amyas, who is conducting an independent review of the charge, ICAEW Tax Faculty head Frank Haskew pointed out that the profession had made two submissions and made it clear during scrutiny of the draft legislation in parliament that the policy might well lead to potential hardship in certain circumstances.
“ICAEW also advised that, while there were some taxpayers using disguised remuneration schemes for the sole purpose of avoiding tax, some taxpayers were misled into such arrangements or had little choice but to accept them and thought the arrangements were in order.
“We suggested that HMRC should take a ‘sympathetic and flexible approach’ to resolving such cases, rather than looking to make the taxpayers concerned bankrupt.”
ICAEW was not alone in warning MPs that there were fundamental problems with the draft legislation and that HMRC had not acted sufficiently quickly to sort out the problems when they first emerged, or indeed later. But their concerns went unheard and the draft legislation was not amended.
Haskew added that there was not enough scrutiny of the relevant clauses in the Public Bill Committee stages. Nor was there a proper debate about the effect of the legislation on taxpayers. This, he stressed, was very disappointing given the “acknowledged far-reaching impact of the loan charge”.
Over the last year, there has been mounting pressure on government from MPs, professional bodies and taxpayers caught up in the controversy to stop the loan charge legislation from being implemented. However it went ahead and the provisions came into effect on 6 April this year.
The legislation added a 45% non-refundable charge on all loans advanced through the schemes – some of them dating back to 20 years ago – unless those caught up in the controversy had agreed with HMRC to settle their tax affairs beforehand.
Part of the problem is that many of the 50,000 people involved are low paid, such as nurses and social workers, and were persuaded by their employers – often public sector bodies – to join the schemes. Many of them are facing bankruptcy. Yet, at the time the schemes were set up, HMRC did not question their legitimacy.
The impact of the charge has been so serious that a number of suicides have been reported in connection with the tax. Earlier this month, HMRC confirmed that it had reported itself to its monitoring body, the Independent Office for Police Conduct, after becoming aware of the deaths of four people who had used disguised remuneration schemes.
Eventually, the government bowed to pressure and Sir Amyas was appointed by chancellor Sajid Javid in September to investigate the issues. He is due to report back in November.
Haskew said that the situation would have been less likely to occur if tax experts’ concerns had been listened to and the legislation better scrutinised. “We believe that it is for parliament to now resolve this situation. However, the controversy surrounding the loan charge has damaged the integrity of the UK tax system and lessons need to be learned for the future to ensure it does not happen again.”
He also warned that if Sir Amyas’ review results in new terms being offered, taxpayers who have already entered into contract settlement arrangements with HMRC in good faith, must not be disadvantaged.
“To do otherwise would further damage the integrity of the UK tax system and the fundamental tenet of fairness,” he added.