MPs warn of Loan Charge settlement miscalculations
HMRC are facing another setback with their handling of the 2019 Loan Charge, as a cross-party group of MPs set up to investigate the controversial tax has discovered an ubiquitous error in the taxman’s calculations of Loan Charge cases.
And the cause? Failing to account for the fact that leap-year 2012 had 366 days in it.
HMRC have been pushing their settlement opportunity as the only way for taxpayers affected by the Loan Charge to spread payment over a manageable timeframe. For anyone who doesn’t settle before 6th April, the Loan Charge will charge them income tax and National Insurance on all contributions to disguised remuneration avoidance schemes over multiple years in one lump sum in 2019-20, which critics argue represents impossibly high tax bills that will lead to bankruptcy in many cases.
Unlike previous “amnesty” schemes from HMRC, such as the Offshore Disclosure Facility in 2007 and Liechtenstein Disclosure Facility in 2009 which offered reduced penalties and no convictions for people coming forward, the Loan Charge settlement opportunity only offers taxpayers a means to spread payment instead of having several years’ tax charged in one go. Interest is still applied at the HMRC rate as per usual.
HMRC have been apparently overwhelmed with the volume of taxpayers seeking settlement, causing substantial delays to responding to settlement requests. On 10th January, Sir B.Rupt wrote on Twitter: “Gave HMRC all my figures in September, still waiting for a settlement figure even though they promised to have them delivered by December”. On 29th May last year, TotalitarianTaxation tweeted: “I’ve been waiting nearly 4 years for you to provide me with a settlement figure for tax you claim that I owe, charging me thousands of pounds in interest while you drag your feet”. Earlier this month, GoodBoyBrown tweeted: “I’ve been waiting over 14 months for settlement figures and was told on phone by an HMRC agent (WH) that I would go to the back of the queue just because I’d phoned to chase them after 6 months of waiting, I was told it was just the way their system works! Pretty staggering” and on the 10th March, 2019LoanCharge tweeted: “After 18 months of waiting, I’m yet to receive my settlement figures.”
In February, HMRC updated their online guidance to offer an expected response time of four to six weeks to settlement requests, whilst confirming that anyone who has made first contact with HMRC before the end of the financial year would still be eligible for settlement, even if HMRC haven’t responded by 6th April. How they intend to police this remains unclear.
And now comes the revelation by the Loan Charge All-Party Parliamentary Group (APPG) that of the few HMRC settlement calculations that they have seen during their recent inquiry, every single one that involves charging interest in the year 2012 has been miscalculated. The error may be small but represents overcharging in every case and will likely further destroy any confidence that affected taxpayers had that HMRC are capable of handling their affairs professionally. People who have waited years for their figures will now have to have them independently checked and potentially sent back for recalculation.
A recent survey of affected Loan Charge taxpayers by the APPG indicated that 40% of respondents had seriously considered suicide already, and an HMRC whistleblower recently told the APPG that as many as six people have tragically taken their own lives as a direct result of the Loan Charge. HMRC and the Treasury have been reluctant to comment.
Sir Edward Davey, Liberal Democrat chair of the APPG, said: “The calculation of interest on late payment of tax is a core function of HMRC and is laid down in law. Taxpayers have a right to trust the figures that HMRC provide. It beggars belief that they have done something so simple as to fail to take a leap year into account.
“This miscalculation means that according to their own Charter, HMRC must now reissue correct settlements in thousands of cases. Additionally, an urgent investigation is also needed into the scale of this issue and how many previously agreed settlements are affected. Most importantly, the Government must now immediately intervene and delay the Loan Charge and suspend all related settlements”.
Ruth Cadbury, Labour vice-chair of the APPG said:
“When HMRC discovers a mistake on the part of a taxpayer, they come down on them like a ton of bricks. It is not acceptable for HMRC to be making simple mistakes like forgetting leap years and overcharging people as a result.
“The Loan Charge scandal gets even more serious. Already we know that people facing the Loan Charge have taken their own lives; now we find out that HMRC aren’t even getting their calculations correct. There must be a delay to the Loan Charge and an urgent and proper investigation into this whole fiasco”.
Ross Thomson, Conservative vice-chair of the APPG said:
“HMRC have had three years to prepare for the introduction of the Loan Charge and they still cannot even produce accurate numbers. I am also very concerned that this error may run deeper and may have been present in HMRC’s computers for the last seven years. If so, then who can say how widespread the impact is and how many tax settlements may have been affected?
“We already know that HMRC are not coping with the volume of cases and are failing to deal with settlements in a reasonable timescale. Now we know they have made a mistake with the calculations too. There clearly must be a halt to all settlements affected and an immediate suspension of the Loan Charge. I will continue to call on the Prime Minister and Chancellor to do this.”
Whilst the APPG continue to lobby government for an urgent delay into the Loan Charge in allow for an independent review and potential reform, a report into the controversial tax by HM Treasury in response to an amendment to the Finance Bill published this week doubled-down on the government’s commitment to implement the charge as it stands, next week, on 6th April. The APPG have secured a dedicated emergency debate about the Loan Charge in the House of Commons main chamber next Tuesday, 4th April, and their own inquiry into the Loan Charge is due to be published imminently.
It may be that HMRC are flooded with settlement requests on the 5th April from individuals that wait to see what the outcome of the debate and inquiry is.
29th March 2019.