Treasury has been accused of whitewash over Loan Charge review
HM Treasury has met the ire of MPs this week after dialling-down expectations of an inquiry into the controversial Loan Charge tax.
The Loan Charge was announced in 2016 but doesn’t take effect until 6th April of this year. The tax targets users of “disguised remuneration” tax avoidance schemes who were paid in loans – the Government argues that the schemes never worked and the Loan Charge represents a simpler alternative to litigation; campaigners argue that taxpayers declared the schemes on their tax returns for years without enquiry from HMRC, implying a tacit acceptance of the schemes’ validity.
The most controversial aspect of the tax is that it charges income tax and National Insurance to scheme payments received over a potential 20-year period in a single tax year, which has led in many cases to crippling liabilities. Tory MP Anne Main mentioned in the House of Commons in January a constituent who is being pursued for £900,000. Many affected taxpayers have complained of health and family problems due to the stress of facing such high tax bills, with some believing the charge will bankrupt them. A Parliamentary committee has heard evidence of at least one taxpayer who was forced to emigrate to avoid the charge, and, tragically, of two individuals who have taken their own lives as a direct result of being chased by HMRC.
HMRC contend that the average liability for individuals is £13,000 and have made a commitment not to force taxpayers to sell their main homes in order to be able to pay.
Whilst the Loan Charge has been unpopular since it was announced three years ago, opposition to the charge has garnered significant traction in Parliament in recent months, as the date it will take effect draws closer. Lobbying from affected taxpayers finally led in January to an amendment to the Finance Bill being passed which “would require the Treasury to review the effect of the changes made by sections 79 and 80 and compare them with other legislation relating to the recovery of lost tax including specifically the loan charge provisions of … Finance (No. 2) Act 2017”.
The passing of the Finance Bill amendment, new clause 26, described in Parliament by the Prime Minister herself as a “review”, was widely seen as a victory for taxpayers, but it has emerged this week that a cross-party group of MPs have been told in writing by the Treasury that there will be no review and that the Treasury will merely publish a report largely written by HMRC focusing on “the issue of time limits for tax inquiries and disguised remuneration schemes”, ruling out any substantive changes to the Loan Charge.
When Ross Thomson, vice-chair of the All-Party Parliamentary Group (APPG) set up by concerned MPs to examine the Loan Charge, raised the matter at Prime Minister’s Questions on Wednesday, there was visible surprise on the Treasury bench, with the Prime Minister and Chancellor Philip Hammond exchanging incredulous glances. Mr Thomson, Conservative MP for Aberdeen South, called on Theresa May to personally intervene “to ensure a genuine review and an urgent delay into the Loan Charge so that this review, as promised, can be carried out”. The Prime Minister would, however, only commit to the Treasury writing to Mr Thomson “setting out exactly what is being done in the review that is taking place” – which they had already done earlier in the week.
Thomson has gone on to accuse the Treasury of “acting in bad faith” over the Loan Charge review, which was due to be presented to Parliament by the end of this month. He said: “I’m sorry to say but it is now clear that the Treasury have acted in bad faith over the Loan Charge review. The Prime Minister herself said that there would be a review and MPs from all sides of the House welcomed that, believing there would be a genuine review open to the possibility of changing the draconian Loan Charge. Now we know this is not the case and MPs will be rightly angry they have been duped.
“I called upon the Prime Minister herself to intervene, she must now do that personally. Asking the Treasury, who are losing credibility over this issue, to write is of no help whatsoever. She needs to realise that the Loan Charge is going to be a disaster for many families and something that will cause a crisis for the Government if they don’t listen. So with many other colleagues, I urge her to act and delay the Loan Charge, scrap the April 5th [sic] date and then allow for a genuine, independent review not a Treasury and HMRC whitewash.”
Sir Ed Davey MP, Chair of the Loan Charge APPG said: “As I made clear in my speech in the House of Commons when I secured the cross-party amendment, we were asking for a real review into the Loan Charge and MPs across the House of Commons will be dismayed to discover that this is not happening and that instead all we have is a ‘report’ which won’t even consider changing the Loan Charge, something that undermines the rule of law. There must now be a delay before lives are seriously damaged and there must then be a proper independent review and one that will consider changing this awful piece of legislation.
“The case for delaying the introduction of the loan charge is overwhelming. This has been so badly handled by the Government and is causing such misery, it has to be reviewed properly.”
Ruth Cadbury MP, Vice-Chair of the Loan Charge APPG said:
“The All-Party Loan Charge Group were horrified to realise that in actual fact, there was not a review being undertaken into the Loan Charge. The Government has acted in bad faith and it’s also clear that HMRC are pulling the strings over this issue and that in itself needs proper investigation.
“As part of our Loan Charge Inquiry, we have heard deeply worrying testimonies from people who are facing ruin as a result of the retrospective Loan Charge, including of one person who has already taken their own life. The Government simply cannot recklessly carry on and ignore this and they must now announce a delay for a proper consideration of this policy, before it is too late”.
The news that the review will take the form of a limited report comes in a week where both the Treasury and HMRC failed to appear at an oral evidence hearing of the Loan Charge APPG, to widespread criticism from MPs, commentators and campaigners alike. Financial Secretary to the Treasury Mel Stride, the Minister in charge of HMRC, had previously failed to appear before a House of Lords committee looking into the Loan Charge on three separate occasions.
The cross-party APPG inquiry was intended to complement the main Treasury review but may now be the more comprehensive of the two – it is due to be published by the middle of the month.
8th March 2019.