Home Financials MPs slam HMRC over an ‘aggressive’ Loan Charge enforcement techniques

MPs slam HMRC over an ‘aggressive’ Loan Charge enforcement techniques


Over two months after publishing their scathing 89-page report on the 2019 Loan Charge, the cross-party group of MPs set up to scrutinise the unpopular policy has published a “dossier of evidence” outlining the way HMRC has been treating taxpayers facing the Loan Charge.

The dossier, prepared by the Loan Charge All-Party Parliamentary Group (APPG), cites a catalogue of HMRC behaviours that, it asserts, demonstrates that the tax authority is not applying a “helpful and sympathetic” approach to Loan Charge enforcement, contrary to the impression that has been consistently given to MPs and the public about those who are unable to meet tax deadlines.

The vast majority of individuals affected by the 2019 Loan Charge tax rules were exposed to it while working as self-employed people – contractors.

Many of the accusations made by the APPG dossier have been reported previously by individual contractor tax payers, but the dossier from the APPG, with their view of evidence from hundreds of affected taxpayers, shows that, rather than being isolated cases, HMRC’s maverick behaviour appears to be consistent across most of the Loan Charge cases that they are handling.

The dossier reports that the settlement terms that are being offered to taxpayers facing the Loan Charge are in many cases “wholly unaffordable” and “ridiculous”. HMRC offered a settlement opportunity to taxpayers willing to approach them before 5th April 2019, which allowed contractor tax payers to spread payment. Anyone that didn’t apply for settlement must pay the entire Loan Charge liability – which in many cases runs into the tens- or hundreds-of-thousands of pounds – in full, along with any other tax due for the year 2018-19.

HMRC committed to offer individuals earning less than £50,000 per annum payment plans, known as Time To Pay (TTP) arrangements, over five years. Individuals earning less than £30,000 qualified for seven-year TTP arrangements. Anyone earning over £50,000 would receive a TTP arrangement at the discretion of HMRC.

Given the size of the liabilities in question, the APPG dossier argues that the TTP arrangements being offered are no way near realistic – citing three examples:

  1. An individual earning circa £30,000 per annum who is being asked to repay £3,511 per month over five years, or £42,132 per annum;
  2. An individual who has no income who is being asked to repay £6,224 per month over five years, or £74,688 per annum;
  3. An individual who was rejected a TTP arrangement on the grounds that he did not have the means to repay on the requested terms, who was then asked to repay the entire amount in full.

HMRC’s Mary Aiston told the Commons Treasury Committee in January: “I appreciate that some customers in this position are facing some big bills, and we are keen to support them to find a way to settle these schemes that they can manage. That is in our interests [sic] as well as theirs.”

The settlement plan for the total tax amounts are compounded by HMRC charging a higher rate of interest on TTP arrangements – a surcharge of 1% is added to HMRC’s “official” rate of 3.25%. Then, taxpayers are asked to sign a document assuming legal culpability for the non-payment of tax, and further documents agreeing that after the conclusion of the TTP arrangement, the taxpayer will be treated as never having agreed terms with HMRC (even though they clearly have) and waiving their statutory rights to appeal under common law and the Taxes Management Act 1970.

It is unclear whether HMRC’s 1% interest surcharge would mean that they’d be providing commercial credit subject to the appropriate regulations.

In an example of HMRC’s “aggressive” approach, the dossier includes correspondence from HMRC in respect of a TTP arrangement that threatens to cancel the payment plan in the event that a payment is missed, which would mean that HMRC’s debt management team “pursue the full debt via various methods”, potentially forcing the individual to liquidate property investments to service the debt. Another letter imposed the arbitrary date of 2nd July 2019 to agree to the payments/settlement terms, which is before the publicly stated deadline.

One taxpayer received his estimated taxes’ demand on his birthday, a full six months after submitting information – raising suspicions within the APPG that the timing was deliberately chosen to inflict maximum stress on the individual to pay taxes. Many others seem to have received their letters on a Friday, raising the prospect that until they can contact an employer, a tax professional or an accountancy firm for advice the subsequent Monday, they spend the whole weekend in between worrying about fines, total tax obligations, and overall tax planning due to the payments on account.

Other evidence seems to contradict HMRC claims made to MPs that “insolvency is only ever considered as a last resort” and “HMRC does not want to make anyone bankrupt” – with HMRC’s debt management team in one case threatening bankruptcy and before subsequently withdrawing the threat, and another letter giving a taxpayer 11 days from the date of the letter to respond with payments before bankruptcy proceedings were initiated by HMRC.

In addition, the vast majority of HMRC correspondence has been received following “unreasonable” delays, with a large proportion of the figures containing inconsistencies and errors. The APPG also believe that HMRC may have been offering unregulated debt advice, potentially in non-compliance with Financial Conduct Authority (FCA) rules.

Chair of the Loan Charge APPG, ex-Cabinet minister and Lib Dem leadership hopeful Sir Ed Davey, compared HMRC to “robber barons” and urged new HMRC minister Jesse Norman to intervene:

“MPs have been told, time and again, that HMRC will treat taxpayers facing the Loan Charge in a fair way, taking their circumstances into account – yet the evidence suggests that simply isn’t true. The reality is that HMRC are pursuing people aggressively and unreasonably, with what they must know are unaffordable demands, backed up with the threat that if people don’t settle payments, they will be hit with the punitive Loan Charge. To make matters worse, it seems HMRC continue to make gross errors in their calculations and keep taxpayers waiting for months for answers whilst expecting these contractor tax payers to respond within days. Mostly self-employed people are forced to pay taxes with money they cannot afford.

“Ministers so far have utterly failed to realise that HMRC is out of control and are using the Loan Charge powers like robber barons. So we urge the new Treasury Minister, Jesse Norman, to listen and suspend the Loan Charge. We hope to arrange a meeting with Ministers soon and we will be pressing for both that suspension and an independent review, as this appalling affair is blighting the lives of tens of thousands of decent people.”

Ruth Cadbury, Labour vice-chair of the Loan Charge APPG and highly vocal critic of the policy said: “So far the Treasury have refused to accept the reality of the impact that the Loan Charge is having on thousands of people and families and the mantra has always been to contact HMRC, who will be sympathetic and helpful. It’s clear that this simply isn’t the case and that HMRC are being ruthless and unsympathetic and this is leading to severe distress and anxiety for many. We urge the Government to finally listen and look at the evidence, rather than listening to HMRC, who are not presenting an accurate picture of their behaviour.”

Conservative vice-chair Ross Thomson MP said: “The evidence shows that ‘settlement’ is not at all voluntary as presented, but that people are being coerced into settling, with no beneficial terms and exorbitant interest, due to HMRC threatening them with the Loan Charge. This shows why a suspension of the Loan Charge is needed and an independent review. There are many thousands of people who lives are being ruined and HMRC are behaving in a way that is making this much worse. The House of Commons clearly backed a delay and independent review, so now it’s time that the Treasury agreed to do this.”

18th June 2019.