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Is The Tide Turning On The Loan Charge?

By March 25, 2020February 16th, 2021No Comments

The Loan Charge All-Party Parliamentary Group (APPG) have released their report into the Morse Review and subsequent bungling by HMRC and others. 

Legal professional examining a document with a magnifying glass

The loan charge has cost lives, livelihoods and destroyed families across the UK. So we’re extremely grateful to see that Parliament are taking time to discuss the Loan Charge APPG report in the light of a more pressing crisis at this time. Two hundred MPs are now calling for the suspension of the policy.


They’re Not Bankers And City Slickers…

David Davis, Former cabinet minister spoke with BuzzFeedNews recently about the injustice of the loan charge:

“Look, in every tax arrangement there will be somebody who plays fast and loose but the vast majority of people caught by the loan charge are ordinary decent people.

They’re not bankers and city slickers who can afford massive accountancy bills to deal with their affairs — they are the locum nurse, the contract worker, the ordinary person who was told this is the only way you’re going to get paid.

“Tax law is pretty much the only law in the British constitution in which you are guilty until proven innocent,” he said. “If you are a small player, a small business or a contractor — you are completely outmatched by the forces of government.

“One of our great constitutional principles is that you know the rules, they’re not retrospective, nobody can reinterpret them after the event. That all goes out of the window.

“And I think we’ll have to revisit that and say under no circumstances will you be allowed retrospective matters in the future, under no circumstances will you be allowed to rewrite the rules and have an act in 2017 that applies all the way back into the 2000s.

“When you read about the people committing suicide and their families talking about it, you can see the torture they’re going through. People on their pensions, close to their pensions, suddenly being told they have to find tens of thousands of pounds, even £100,000.

“I would choke and I’m a comparatively well-off person, so somebody who’s had an ordinary career, hasn’t earned enough to save every much, maybe raised a family, spent money doing that, all the things we want them to do — and then they suddenly find, the tax authority comes along and says ‘We want that money please. Because we made a mistake.'”

And MP Ruqa Huq rightly pointed out that the taxpayers were advised to operate in a certain way and the government should be taking action against the promoters of the schemes.

As you can imagine, the report is not particularly flattering, but it does give a slim ray of hope to those affected by the outcomes of the Morse Review. Crucially, there are a few tantalising signs of intelligence and common sense at long last!


A Litany Of Errors and Assumptions

The Loan Charge APPG report describes a variety of errors made before, during and after the Morse report, even going so far as to label it a “scandal”. We’ll discuss some of these now.

Firstly, and fundamentally, the terms of reference for the report were too narrow and inherently biased: they only allowed one subset of taxpayers impacted by the loan charge to be considered, ignored wider implications such as the legality of their recommendations and actions, and presented the Government’s opinions as facts while using loaded and emotive language that presumed the intentions of those affected. In a shocking twist, this presumption was not a positive one.

Next up, the testimony they requested and received was heavily biased towards HMRC, and so was not independent. It was also incorrect, or at the very least presented in a misleading manner: the review asserted that the law was clear in 2010, hence all schemes taken part in since that date are in breach of that law. The thing is, the experts didn’t agree that the law was clear, and no judgement was made that could set a precedent until 2017. Interestingly, this judgement didn’t even support HMRC’s position, as the employer was held liable rather than the employees.

The Loan Charge APPG went so far as to characterise this as “the fundamental error in the Morse review”. The fact that the law was revised in 2017 would lead most to conclude that it was not clear, and professional, reputable advisors were advocating and/or approving the use of these schemes between 2010 and 2017, including the Big 4 and even HMRC!

They also concluded that the loan charge terms are unnecessarily punitive, and the retroactive application of the 2017 law especially so. It removes statutory protections for taxpayers including the right to refer disputes to tax tribunals. Very shady…


The Taxpayers Are The Victims

They noted that those who complied are now disadvantaged compared to those who did not (though they presumably aren’t taking into account that compliance probably meant less interactions with HMRC, and therefore less stress…), and that the recommendations made were not appropriate for small/medium businesses.

Crucially, the Loan Charge APPG have concluded that taxpayers are the only party in this whole sorry mess who are being held to account. Those who advocated and profited from the loan schemes have not been prosecuted and are free to continue doing so today. So, by inference, HMRC is absolutely fine with parties advocating and operating illegal loan schemes – it just doesn’t like taxpayers profiting from them?! It’s notable that in the Rangers decision, it was determined that the employer was responsible for deductions, not the employee.

Worse, HMRC and their staff have not been held to account for their many failings in this whole sham, and, indeed, for their cynical and manipulative behaviour, especially using behavioural insights to stress and intimidate those whom they are chasing, “something that has been cited in one of the seven known suicides of people facing the Loan Charge”. They even published, and still have published, a list of people who are currently being threatened, we wonder what the ICO would say about the data protection of these individuals??

So, in short, the Loan Charge APPG have concluded that HMRC have handled this terribly, and are recommending a review into the shenanigans in which HMRC have been partaking. They’ve also made several other surprisingly reasonably recommendations:

  • Make the loan charge prospective from 16/11/17 rather than retrospective from 9/12/19
  • Reinstate taxpayers’ statutory rights
  • Entirely remove all ‘closed’/’unprotected’ years from the scope of the loan charge
  • Define “reasonable disclosure” (using “reasonable” in law should be illegal… specify!)
  • Remove late payment interest when HMRC are holding up enquiries
  • Legislate to ensure that those who have settled with HMRC on the basis that their loans were income are not compelled to repay those loans.

There are other recommendations (20 in all), but these are the ones we found most compelling. It’s good to see MPs trying to do something positive, proactive, and applying common sense as these traits are, tragically, largely absent from contemporary politics. Of course, these findings are from an informal group who are advocating that the Government take action, so we’re reliant upon the Government to do the right thing, something for which they’ve shown a startling historical disinclination. 

While it’s still probably best not to hold your breath for anything meaningful to transpire, we’re waiting to see what the government’s next move will be. 

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