That this House expresses its serious concern at the 2019 Loan Charge which applies from
We now come to the resumed debate, which was sadly interrupted by the rather well-publicised leak last week, on the motion on the introduction of the 2019 loan charge. Justin Madders had just concluded his oration when the debate was suspended last Thursday—something I am sure all colleagues recall very keenly—therefore I think I am right in saying that the next person to speak in this debate is Mr Stephen Metcalfe.
Thank you for calling me so early in this resumed debate, Mr Speaker. I have to say that I had never imagined that I was going to speak in it, seeing as rain stopped play at about this time last week. I am by no means an expert on the 2019 loan charge, but I, like many others who expressed an opinion last week, have been contacted by numerous constituents who have set out in clear terms how they believe it would impact on them. They are being asked to pay back thousands, tens of thousands, and in some cases even hundreds of thousands of pounds that they never believed would be due.
Do not get me wrong: I believe that everyone should pay their fair share of tax. We know that that is what funds our public services, and we should clamp down on tax evasion at every possible opportunity. However, minimising tax exposure has always been a legitimate part of our tax system.
When looking at this issue, I have been on a journey. Initially I was in two minds about the validity of the arguments presented. Obviously, I had great sympathy for my constituents on both a personal and an individual level, but I felt that the old adage, “If something looks too good to be true, it is too good to be true,” applied. I have now, however, come to a different conclusion. I have looked at the individual cases presented and at the wider issues. To demonstrate why I have come to that conclusion, I want to use the words and sentiments that one particular constituent has sent me. He wants me to do this anonymously, as he does not want to prejudice himself or his case. As an aside, I am not sure that it is a healthy state of affairs when constituents are scared to speak out against a Government agency.
My constituent is a freelance IT professional who was advised to enter one of these schemes. When he entered the scheme, to give himself confidence that it was legally compliant and that what he was being told by his professional adviser was true, he contacted Her Majesty’s Revenue and Customs. The correspondence my constituent has from HMRC shows that in 2012, when he was checking for compliance under disclosure of tax avoidance schemes legislation, he asked HMRC to review the particular arrangements he had joined. I am informed that the HMRC anti-avoidance group concluded that no hallmarks of tax avoidance were in evidence and so HMRC did not assign a DOTAS number to that arrangement.
If that is true, which I obviously believe it is, I think it is fair to say that, under HMRC’s duty of care and due diligence, it had plenty of opportunity to inform my constituent that things had changed and that the particular arrangement that he had entered into would be liable to taxation. HMRC completely failed to notify my constituent that anything was amiss, so for years he relied on the initial HMRC advice he had received and continued as a customer of the arrangement.
That retrospective and disproportionate approach being taken by HMRC are what concern a number of my constituents. The people I represent are very reasonable, and they would be happy to come to an arrangement with HMRC, but HMRC seems to want to bankrupt its debtors, as opposed to getting some return from them.
My hon. Friend makes an excellent point. All the correspondence I have had has been phrased in very reasonable terms. People want to do the right thing, but they feel under a huge amount of pressure.
I am sure that, every year, my hon. Friend’s constituent sent in a tax return, which HMRC ticked, approved and sent back. Only recently has HMRC suddenly seen the way things are going and said, “Right, this is some kind of tax avoidance. Let’s get it all back, and in one year.”
I do not know what the rules are on my hon. Friend reading the next line of my speech over my shoulder, because it says here that my constituent continued with these arrangements and, each and every year, dutifully declared on his tax return the amount he had received in loans and the amounts he had returned thereof. It came as a surprise that, years later, HMRC intends to use its newly granted powers—in what my constituent describes as “winding back the clock”—to retrospectively claim that the arrangements my constituent and others had used were not legal, had never worked and that the tax on the loans was always due.
I thank the hon. Gentleman for making these excellent points. Like me, does he find that he has several constituents who had no option but to be self-employed and were required to enter such vehicles?
The hon. Lady makes an excellent point. For many there was no option. In many cases, as in the case of my constituent, people had to enter these schemes. My constituent even checked whether there were alternative options and checked the legitimacy of it, never thinking it would come back to haunt him.
I have to say that I do not like it. It feels wrong. I would like to think that I am a fairly reasonable chap, and when I feel that something is wrong or off and does not feel like natural justice, it tends to be true. Eventually, the Government will come round to my way of thinking, or I very much hope so.
As I said, I am not an expert on tax in general, but the charge is retrospective and HMRC failed to notify scheme users of the tax liability. Users sought professional advice or were advised to enter these schemes and, as in my constituent’s case, annually declared what they were doing.
Does my hon. Friend agree that, for some caught up in the loan charge, their circumstances may be the result of unfortunate omissions in, for example, professional advice or, indeed, HMRC advice, rather than a deliberate act on their part. For that reason, clemency and reasonableness should be applied by HMRC.
On giving latitude, does my hon. Friend agree that these cases vary quite considerably? In some cases, it may be about allowing more time for people to pay; in others, it may be about looking at the detail of the debt and whether there is other evidence to suggest it should be less; and in some cases, it is a question of giving latitude on how many years HMRC goes back.
My right hon. and learned Friend makes some good points, and I am aware that the Government have set out some of the mitigating measures they want to put in place. I am sure we all welcome those measures, but there is a need for both a pause and a full and proper review of what is being proposed to see whether we are acting in a way that would be considered to be natural justice.
I want to continue. In failing to act back in 2012, when it had the opportunity—and surely the duty—to do so, HMRC denied my constituent the opportunity to depart the arrangements and seek an alternative solution for his payroll needs.
My hon. Friend has been so generous in giving way that I hesitate to intervene once again. When he says that something feels wrong, he is on to something, because what feels wrong to some of us is that the equivalent effort does not seem to be put into pursuing the promoters of the schemes, or indeed the employers, and that the entire weight of recovering the so-called tax gap is falling only on the employees. That does not feel right.
Order. Before the hon. Gentleman answers that point, I should explain to the House that we have less than 50 minutes left for this debate, for obvious reasons. He finds himself in the difficult position of being the opening speaker, as it were, and therefore he has been required to take a lot of interventions because people have short points that they want to make, but of course this debate had the bulk of its time last week, and I know from what people have told me that what they actually want to hear is the Minister’s reply to the many questions that were asked last week, and will be asked this week. There will therefore be a very short time limit on speeches—probably two minutes. The hon. Gentleman has been very generous in taking interventions, and I am sure he wants to finish the points that he would like to make. I have no objection to his taking further interventions, as long as the House realises that that will be the bulk of the debate.
Madam Deputy Speaker, I hear what you say loud and clear, but I did want to allow Members to intervene because I think it allows them to get their points on the record.
The point that my right hon. Friend Sir Michael Fallon raised is completely valid. We need to be throwing the net wider to recover some of this money.
I reiterate that my constituent acted only under advice from a chartered accountant, with tax counsel’s opinion, so although everyone has a duty to pay the tax they owe, this feels off. It feels like a retrospective tax grab. We know that it is causing great stress, anxiety and depression. We know that there have been three suicides associated with it. It cannot be right and surely we must have a duty to look at it again.
If I may, I shall quote my constituent, who says:
“Very simply, if the loan charge is not delayed, and comes in as it is, it will destroy my quality of life and that of my family. It may well prevent me from working and lead me into bankruptcy. It has already caused me to suffer extreme stress, and is causing huge anxiety for my family. If the Government ploughs on with this retrospective legislation, it will be responsible for devastating the lives of families across generations.”
I will leave it there.
Will the Minister seriously consider a delay in implementation and a removal of the retrospective nature of the charge, so that it certainly does not go back further than 2017, when the charges were first announced? I hope that he will build on the assurances that he has given Members who have written to him—I am very grateful for those reassurances—by finding other mitigating measures, so that we can demonstrate, as a House, that we can respond positively and that we are capable not only of listening to, but of hearing and acting upon, the words of the people who come to us, asking for our representation.
Constituents who have come to me are overwhelmingly people with their own businesses who took out a scheme in order to free up more money to invest in those businesses, to employ people and to make sure that that business had a sustainable future. They do not object to the fact that it has, since 2012, been found that those schemes are wrong, but they do object to the fact that they are being sought for payments from before that time. The advice they are getting from the Inland Revenue on settlement figures is extremely late. One of my constituents was informed on Tuesday
The Inland Revenue has stated that it does not expect anybody to have to sell their main residence, yet it is requiring taxpayers to seek to take out a large loan or mortgage on their only or main residence. These people are often in their late 40s or 50s, coming to the end of their working life, so they cannot take out such large loans on their property, and if they do they are in danger of defaulting, in which case they will lose the property anyway. I therefore ask the Minister to look at what the Inland Revenue is requiring by way of loans on main properties. Does he stand by the Inland Revenue’s advice that main properties are not to be put at risk?
I also ask the Minister, and those who are supporting people with the loan charge, to look at the case of professional indemnity insurance for the chartered accountants or tax advisers who often gave this advice, and at whether the scheme promoters were covered by the Financial Services Compensation Scheme, because if it was pensions or any other area of financial services, we would be going straight to professional indemnity and to the Financial Ombudsman Service to seek compensation.
The Minister needs to look at the advice that is being given. The Inland Revenue told the Public Accounts Committee two weeks ago, “Among the disguised remuneration users, there are undoubtedly people who have liabilities for years, where under the normal rules we do not now have assessing rights…we have asked those people to settle voluntarily for those years, which they may choose to do so.” Those figures are not divided out and people are not given the opportunity to pay back the loans to the companies that made them. Will he look at that?
I am speaking today on behalf of about 100 constituents whose lives have been blighted by this and who have lived with awful uncertainty for about three years. After last week’s debate, I met a number of them at the City Praise Centre in my constituency. I have to say that when I first met constituents about this, my heart did not exactly bleed for them; it is not fair for one particular group of people to pay income tax at a lower rate than the rest of the workforce, and lots of my constituents are in real need, living in substandard accommodation and waiting months for hospital appointments, so I cannot condone the systematic loss of revenue to the Treasury.
I thank my hon. Friend and absolutely agree.
My view has since shifted, however, as I have come to understand more about their circumstances. These people are not pocket Al Capones out to defraud the system; they are self-employed professionals who are contracting to different entities, paying their own pensions, without the protection of regular employment, and trying to avoid the complexities of IR35. I guess any of us would wish to minimise the tax we pay, and HMRC knew about those arrangements for decades and was slow in taking legal action, and inept in shutting it down.
Absolutely, and now of course it is pursuing an aggressive policy that, on any analysis, is retrospective on my constituents. These constituents may have been naive and over-optimistic, but most of us are in no doubt that, for many years, they all believed that these schemes were lawful and an effective means of mitigating their tax. I therefore support a delay to the implementation of the loan charge to allow an independent tribunal to assess the issue of retrospectivity, and, in light of that, to consider whether the loan charge is fair and proportionate after taking into account, first, the failure of HMRC to take effective action for all those years, and, secondly, the fundamental protections that every taxpayer should expect.
Finally, I fear that this policy is another example of how those at the very highest echelons of our Government seem to have a tin ear when it comes to the good people whom they represent.
I begin by thanking the Backbench Business Committee for this debate, the loan charge all-party group for its fantastic work, and the campaigners for bringing this situation into the public eye.
Many employees signed up to these disguised remuneration schemes and arrangements in good faith, and many of them declared them to HMRC. The problem is that many of them are now being unfairly caught up in the Government’s loan charge. Their retrospective implementation has left many people who were unaware of these schemes with eye-watering bills. That is the case for many of my constituents who have been to see me to explain that they have been unfairly burdened with this charge. They did not know that these schemes were a form of tax avoidance, and now they are being asked to pay back tens of thousands of pounds—money that they can ill afford. The burden of paying it back is causing them great distress, including mental ill health.
One constituent told me that she fears that she will have to sell her home. Another constituent risks going bankrupt, while another just broke down in tears when they visited my recent surgery, fearing the consequences that the charge will have on both them and their family. We know that these are not isolated incidents. All these facts were also revealed in the excellent inquiry into the loan charge by the all-party group.
What is most disappointing about the Government’s response is that this scheme is targeting individuals rather than the companies. It is unfair that many of my constituents are being asked to pay back tens of thousands of pounds. I urge the Minister, when he responds, to commit to suspending the scheme for six months and, more importantly, to calling for a judge-led independent inquiry.
As many Members of this House have said, the problem is that HMRC has been very slow to react to this whole matter. As far back as 2004, Dawn Primarolo, when she was Paymaster General, said that the Government would legislate to stop these schemes. The Government legislated again in 2011, but it was not until the Finance Act in 2017 that the loophole was closed.
Let me say in the very short time that I have left that the excellent Library briefing that we have been given says that the Government estimate that 50,000 individuals will be affected by the charge on these disguised remuneration loans, of whom only 24,000 so far have contacted HMRC. It is my understanding that if they have not contacted HMRC and agreed a repayment scheme by
In closing, I simply say to my right hon. Friend the Minister that if this debate is to have meant anything, can there please be a little flexibility in how those payments and charges are investigated, so that at least everyone paying them can be fully satisfied that they are properly due?
Tax is the price that we all pay for a civilised society. I certainly come from the “pay your bloody taxes” school of thought when it comes to disguised remuneration schemes.
With the short time that is left, may I explain to the Minister, from what I have seen both on the Treasury Committee and from my own casework, the weaknesses in his and HMRC’s argument? First, HMRC knew about these schemes for many years. Year after year, in successive tax returns, in individual cases and collectively, it signed off those returns, and failed to take action against promoters.
Secondly, people took advice and acted in good faith year after year on the basis of that advice. That is certainly what happened in my constituency cases. The Government should be taking far sterner action against promoters than individuals who were misled.
Thirdly, in the way it has conducted itself, HMRC has fallen woefully short of the standards we should expect, both in its lack of timely communication with taxpayers and in the way it has misled legislators in calling for them to legislate for the loan charge.
Taking all those things into account, even now, there are people in my constituency and across the country who face demands for six-figure sums. No one—at least no one from an ordinary background, which my constituents are—can afford to pay them back. People are being compelled to settle now, while the situation is under active consideration by parliamentarians. When we look at how many MPs have signed the early-day motion and the letter to the Minister, it is clear that this policy no longer commands the support of the majority in this House.
I have met constituents and seen copious documentation that they have brought me that reinforces everything that has been said by every other hon. Member in the Chamber, in particular about the good faith in which people entered into these schemes, the lassitude with which Her Majesty’s Revenue and Customs originally pursued the matter, and the arbitrary way in which it acted thereafter. I endorse the calls for a pause to the scheme, for an independent inquiry and for the retrospective element to be removed. It simply is not just.
There is an old legal saying—perhaps you recall it, Madam Deputy Speaker—that he who comes to equity must have clean hands. The person who seeks the redress of the courts must have acted in good faith. I fear the Revenue has not acted in good faith in this matter, with my constituents or with taxpayers generally. There is an aggressive attitude towards tax collection that has gone beyond the bounds of fairness.
“a trump card which prevails over all other considerations.”
Instead, she said, it is
“a broad duty, exercised by means of a wide managerial discretion, within which is embedded the obligation to treat taxpayers fairly”.
My constituents, as taxpayers, saw years go by in which the Revenue had the opportunity to raise its concerns about these schemes with them but did nothing. Their bills therefore ran up, and then, suddenly, they were hit with arbitrary figures. They have not been treated fairly by the Revenue in this case, and we look to the Minister to put that right.
My constituents who have been badly affected by the loan charge are not wealthy people, and they were doing only what their advisers and employers encouraged and perhaps even coerced them to do. They had no reason to doubt the validity of the advice they received, and they were led to believe that everything was above board and within the law. They are now being asked to pay tax for periods a long time ago, when their financial circumstances were very different and for which they thought the slate had been wiped clean, which is imposing very worrying burdens.
I shall make three brief observations. First, in my constituency, it appears that those working in particular sectors have been hit hard by the loan charge. That is particularly true of those working in IT and in the North sea oil and gas sectors, both of which used to be considerably more attractive, with better pay available than is the case today.
Secondly, it strikes me as both wrong and inherently unjust that HMRC is seeking tax payments from a group of people, many of whom are not well off and are really struggling to get by, yet it is not pursuing those client organisations, agencies and umbrella groups that benefited from setting up these arrangements and actually encouraged and coerced people to enter them in the first place.
Thirdly, a great deal has been said about the retrospective nature of these charges, which change the tax position for past years right back to 1999. In the two sectors I mentioned—IT and oil and gas—job prospects were considerably better at the start of the millennium than they are now. I know the Minister well, and he is someone for whom I have great regard and respect, but I urge him to pause, listen and review.
Before the sitting was suspended last week, I listened with interest to over two hours of debate on this, so I know that the arguments have been well made and we will review them again.
One thing that those arguments have in common is that they concern people who genuinely entered into these schemes under the impression that everything was above board, based on what they believed to be good and sound advice from accountants, advisers and banks. These people were, in many cases, entrepreneurial, self-employed individuals. It is important to stress that, as far as they were concerned, they were not employees and so did not gain from the security of the benefits that come with most forms of employment such as sick pay or holiday pay. To all intents and purposes, they were simply self-employed.
I urge the Minister to consider putting the loan charge on hold and to consider an independent inquiry. It is important that before we do so, we reflect on the way that things have been changed. I recognise the changes that have been made by HMRC, which now targets the promoters of tax avoidance schemes rather than the individuals who entered into them under the impression that they were legitimate. I would argue that there is a better case for pursuing those who promote these schemes. This approach is successful. Only two weeks ago, HMRC won a legal case against a tax avoidance scheme provider, Hyrax Resourcing Ltd, collecting £40 million in unpaid tax. As I understand it, Hyrax users were paid just enough to comply with the minimum wage, with the rest of their income made up of loans that were transferred to an offshore trust in Jersey.
This is an important development, because it now contrasts with the way in which we were approaching the matter previously. We are now approaching it through the promoters and closing things down in the legitimate way that we should expect. That is the right way to do it. That is important for the people who have been pursued, going back 10 or 20 years, and who want to see that the process is done in the right way. We should put this on hold now.
What can I say in two minutes, Madam Deputy Speaker? Well, I will do my best.
I am a person who is naturally a bit cynical when constituents come to see me and I try to see both sides of the story, but in this case I had more than 160 constituents in the group in Watford to do with the loan charge. I commend Her Majesty’s Revenue and Customs—rather like Ruth George, I sometimes still call it the Inland Revenue—for its efforts to deal with tax evasion, but it seems to me that in this case it is not tax evasion. These were schemes put forward by accountants and schemes where people took on employment and were told that that was the way they had to do it.
Does the hon. Gentleman agree that action should be taken against the employers who forced these people into these schemes and the financial advisers who sold them the schemes in the first place? I have had lots of constituents on at me about that. [Interruption.]
Clearly, these schemes were not correct. The way to deal with this is to say that if people went into this because they were reasonably advised to, or told to by their employers, then even if they are liable, HMRC should have the flexibility, on a humanitarian and a mitigation basis, to say, for example, that the money should be paid back over a lengthy period—monthly, quarterly or whatever. I am sure that HMRC does not wish to bankrupt people, ruining their lives and so on.
My right hon. Friend the Minister is himself a man experienced in business who is very aware of the ways of the world. I am sure that he knows the difference between criminal tax evaders and people like my constituents in Watford and other hon. Members’ constituents. Because of that difference, HMRC should have the flexibility to deal in a humanitarian way with these unfortunate people.
If there is an inquiry into this matter, as I hope there will be, I would be surprised if it were not found that the whole issue boils down to a single, simple question—were people who were using these avoidance schemes and openly reporting them to the taxman adequately warned at the time by HMRC that such schemes were not approved and might lead to heavy future bills? If they were warned yet chose to proceed, they have only themselves to blame for continuing to use such schemes after the warning was given, but if they were not warned at all, then HMRC cannot reasonably expect to recover any tax whatsoever from them.
I have huge sympathy with my constituents caught by loan charge repayments, because they are normal honest people who thought they were doing the right thing. They had no intention of diddling the taxation system.
Most people who owe loan charge repayments accept that they are now liable to pay that tax back. What I find unacceptable is the amount of interest that is heaped on that tax requirement. My plea to the Minister—as he knows, because I have spoken to him separately about this—is to reconsider the interest charges. In my view, they are far too high and, as a decent gesture—because these people did act decently—the interest charges should be dropped entirely. Such a move would go a long way to lessen concerns among my constituents, and it would be a fair way to proceed, bearing in mind HMRC’s lack of warning to participants in loan schemes.
I am grateful for the chance to sum up in this debate. Even without the request for brevity, I do not think my voice would last much longer than the few minutes that I have.
I do not know if the sponsors of the motion intend to divide the House tonight, but I think that would be a mistake. Everyone would support it, with the possible exception of the Minister. We have heard rumours that they will artificially force a Division, but I am not sure that this is the right occasion to do that.
Last week, Sammy Wilson reminded us that three of the main tenets of a tax system are certainty, fairness and convenience. Another one is that tax has to be mandatory. If it is too easy to dodge the tax, it will not work. There is a distinction, which a recent speaker highlighted, between the vast majority of the 50,000 people we are talking about—who may have been naive or made the mistake of trusting their professional advisers too much, and who may be mildly culpable but certainly were not culpable to the extent that they deserve to go through the stress that they are going through now—and a fairly small number of people who knew what they were doing. They are probably hiding at the back now, hoping that the justifiable cases will get some sort of dispensation and they can go through on their coat-tails. One of the criticisms of HMRC in the past has been that it has not distinguished between the people who made mistakes—who maybe took a bit of a chance, not really understanding what they were doing—and those who went into this with their eyes open and the deliberate intention of dodging substantial amounts of tax. That has to include the promoters and employers of the schemes.
My hon. Friend Ross Thomson, in his opening comments last week, pointed out that many of the companies that are most culpable have conveniently been wound up. The people who set them up have not been wound up. They are still there and they can still be traced. They are running similar schemes in similar companies. One of the things that the independent inquiry that is clearly needed should be able to do is to look into whether there is a case for lifting the usual veil that separates limited companies from those who run them. If company directors are found guilty of personal misconduct, sometimes they can be held liable for the wrongdoings of the company, despite the fact that legally they are two different persons. That may have to be looked at on this occasion.
Three questions have to be asked. This is quite a task for HMRC because I want it to do this for each one of the 50,000 people, so that each case is looked at on its merits. First, was the tax liability properly and legally established at the time? In many of the cases we are talking about, that may have been the case. Secondly, did HMRC take reasonable and intelligent steps to identify and notify the debt and to attempt to recover it at the time? In many other civil debt cases, if the person who is owed the money does nothing about it for years and then tries to claim the money with interest, it is time-barred and they cannot do it. Why are HMRC not subject to the same restriction?
Finally, and most importantly, is HMRC taking recovery action now that is fair, proportionate and reasonable, given the individual circumstances of the person they are pursuing? In many of the cases we have heard about today and even more so last week, there is a serious question to be asked there. I am not asking whether HMRC is acting within its legal powers; I am asking whether it is acting fairly and reasonably. Sometimes HMRC’s powers do not require it to act reasonably and fairly.
Actions need to be suspended so that the issue can be sorted out. At this stage, I cannot support a full amnesty because an inquiry would identify the people who should be held to account and who should pay back substantial amounts of back tax. I cannot support the full wording of the early-day motion on an immediate amnesty, but that may change once we have dealt with the people who set up the companies—not those who were on £30,000 a year, like most of the cases we are talking about—and were raking in profits of millions of pounds and paying heehaw in tax. They are the people HMRC should be going for. If HMRC did that, the amount of money recovered would be a significant proportion of the total for which we are now pursuing 70 of my constituents and 50,000 of our constituents collectively.
I will not have time to take interventions, so the House will have to forgive me for that. I thank Ross Thomson for bringing this matter to the House’s attention. I will not reiterate the points made in the many contributions to the debate today, and I hope that last week’s thoughtful contributions have given the Financial Secretary to the Treasury pause for thought.
Labour believes that it is necessary to take action against all forms of tax avoidance and evasion. We stood on a manifesto that included a tax transparency and enforcement programme, and we continue to stand against schemes of this nature in their many forms. HMRC estimates that 50,000 individuals have not paid the proper taxation as a result of disguised remuneration schemes, of which there could be up to 250 variations. As of the start of this year, roughly half of those affected—27,000 people, as has been said—had registered with HMRC to correct their tax affairs. However, the Loan Charge Action Group estimates that up to 100,000 might be affected. Will the Minister clarify that?
What plans do the Government have to undertake a distributional analysis of the impact of the loan charge? Labour raised that matter through an amendment to the last Finance Bill, which was sadly rejected. It is vital to note that many of those concerned were encouraged by other parties to enter into a disguised remuneration scheme, sometimes even by their own employers, as has been made clear. We do not believe that the Government have done enough to pursue third parties who promoted such schemes. They must surely take a share of responsibility in many cases for what took place.
The report published by the Government suggested that only 10 organisations are facing legal action for promoting the use of such schemes. That seems a small number compared with the 50,000 individuals being chased. Why so few? I note also that only one and half pages of the 56-page report was dedicated to action against organisations promoting DR schemes, which is telling in itself. The Government have taken steps to allow those affected by the loan charge to repay their tax over a set period, with those earning £50,000 or less being granted up to five years to settle their affairs and those earning £30,000 or less getting up to seven years. What evidence was used to agree that period? If we knew more about the distributional impact of the loan charge, as Labour has repeatedly suggested we should, we would know whether that was manageable for individuals. Given the extreme stress that the loan charge is causing, have the Government nevertheless considered looking at extending that period to allow a more gradual payment? That would ensure that the full tax owed could be returned to HMRC in a manner that did not weigh too heavily on individuals. Has the Minister explored that option?
I would like to raise a point first made by Ray McCann of the Chartered Institute of Taxation to the Treasury Sub-Committee in December. He pointed out that the charge might be applied to those who had previously notified HMRC of their use of the scheme through the disclosure of tax avoidance schemes, but HMRC did not follow up on the disclosure—a point raised by many others. In the evidence session, Mr McCann suggested that that might leave the Government in murky legal territory when trying to apply the loan charge to individuals who had disclosed and included a DOTAS number on their tax returns. The review published last week seemed to suggest that a minority of cases were affected and rejected the assertion that legal issues may arise here. Can the Minister comment on that and say whether any action has been taken to rectify what seems to be a failure of HMRC to investigate DOTAS in some cases?
Will the Minister also comment on the impact of cuts to HMRC staffing and the loss of expertise on its ability to deal with such cases quickly in advance of the deadline? HMRC has lost 1,274 staff since March 2018 and 15,637 since 2010. This is a point that I have repeatedly asked about. Even the Government’s own review conceded that many individuals who have come forward to HMRC to have their cases settled have not been dealt with at all yet, or have waited a long time for a response. Does the Minister not accept that once again we are seeing the fault lines in the Government’s programme of HMRC retraction? This is clearly an issue of huge importance to those facing a significant increase to their tax bill, and the Government must act quickly, following recent events and their impact on people. I do not impugn the Financial Secretary to the Treasury in any way, but the Government could provide more comfort and certainty for those now facing significant additional financial pressures as a result of the charge.
It is important that the Government act to recoup tax owed, notwithstanding the many concerns raised by Members about constituents’ individual circumstances, but a blanket approach is not appropriate. We cannot have a tax system that, as one Member suggested, is based or run on instinct. I expect the Financial Secretary knows well that people are deeply concerned about this issue, and I am sure he will respond as constructively and positively as he can, given the many concerns raised by Members.
I welcome the return of this debate, which was so interestingly interrupted by rain—I think that is about the only matter raised for which I have not been blamed at some point, as it was an act of God. I congratulate my hon. Friend Ross Thomson on securing the debate, and I thank all those who have participated, both today and last week.
Perhaps I can try to find the one element of consensus that unites Members on both sides of the House. Most speakers have referred to the fact that they have no time for aggressive and contrived tax avoidance, and they are right. Every amount of tax avoided in such a way means more tax for other taxpayers to find, or less funding for our vital public services.
I am afraid I will not. I want to make progress, as there is a lot to cover and little time.
For the benefit of the House, let me set out the heart of how these schemes work, so that we are clear on that point. An employer can engage an employee and pay them in the normal way, by way of earnings, in which case national insurance for the employer and the employee is due. Income tax must also be paid by the employee. Alternatively, they can use a loan scheme, which generally works like this: instead of the employer paying the employee in the way I have described, money is sent out to a low or no-tax tax haven, and placed in a trust. That money then comes from the trust back to the United Kingdom, where it is treated as a loan, even though there is no intention of ever settling that loan or paying it off. Because that money it is treated as a loan, it is claimed that it does not incur any national insurance or income tax because it is not earnings.
When confronted with the reality of how these schemes work, most people would say that that is not right. That brings me on to one of the most commonly held misconceptions about these schemes and the loan charge, which is that the loan charge is retrospective. There was never a time in the history of our country where the model for payment that I have just outlined has ever been correct within the tax rules of any previous year. That is a simple fact.
I will not give way just yet. My second point is that the very nature of this means of payment, of tax avoidance, is that it involves a loan that is still outstanding—those loans are still outstanding today, at this very moment, for any schemes that still persist. It is a simple fact that most people, including the 99.8% of the tax-paying public who did not go anywhere near these schemes, would have concluded that if something looked too good to be true, it probably was too good to be true.
The Minister is generous in giving way. In my constituency, 140 people are affected, largely in the oil and gas sector. Oil and gas employers encouraged people to enter these schemes. Does the Minister agree that companies in that sector should be held to account, as should employers and the people who sold the schemes?
My hon. Friend is entirely right. I will come on, in the limited time I have, to deal with both employers and promoters, as those are very important aspects too.
When it comes to retrospection the other important point is that, contrary to the suggestion many right hon. and hon. Members have made that this issue has just suddenly appeared and HMRC has just started to address these scheme, it has been taken through the courts over countless years. In 2004, Dawn Primarolo, who was referred to earlier in this debate, was instrumental in bringing in the DOTAS legislation upon which recent cases have been concluded in HMRC’s favour. There has been a concerted effort by HMRC over many, many years to clamp down on these particular arrangements.
Some of the other misinformation includes the idea that thousands upon thousands of taxpayers are about to be made bankrupt. HMRC very, very rarely has a situation where somebody is placed in bankruptcy. That is not right for the individual and it is not right for our tax collecting authority. In fact, my hon. Friend Sir Paul Beresford gave several examples last week of where he had accompanied his constituents and got involved with their tax affairs and their dealings with HMRC. In each case, as he was able to state, a fair and reasonable settlement was entered into. That is the main thrust of HMRC’s approach.
It has also been suggested that people will lose their home as a consequence of the loan charge. It could not be clearer: HMRC has publicly stated that nobody will lose their primary residence as a consequence of settling their loan charge liability. On the point my hon. Friend Colin Clark raised about employers and individuals, it has been assumed widely in this debate that the vast majority of those impacted by these measures are individuals. That is not the case. Of the 6,000 settlements to date and the £1 billion that has been brought in, 85% by value has come from employers, not employees. In the first instance, HMRC will go to the employer, not the employee.
The issue of promoters is extremely important and, quite rightly, a number of right hon. and hon. Members have raised it. I want to make it clear that HMRC is cracking down on the unscrupulous promoters who sell these schemes. In fact, it is currently investigating more than 100 promoters and others involved in the promotion of tax avoidance. That includes promoters of disguised remuneration schemes. In recent years, HMRC has also litigated a number of cases of failure to disclose under DOTAS, which came in in 2004—not recently—and several recent decisions in cases on disguised remuneration have been found in HMRC’s favour. HMRC has also made successful complaints to the Advertising Standards Authority in relation to DR schemes to stop promoters making misleading claims about the arrangements they are selling. Just two weeks ago, HMRC announced that it had won a legal case against a loan scheme avoidance promoter, Hyrax Resourcing, which will help HMRC to collect over £40 million in unpaid tax. For the reasons I have set out, it would not be right to delay these arrangements.
Let me turn now to two particularly important issues that many Members have raised, first on the affordability of payment arrangements. Let me be very clear: it is never the intention of HMRC to bankrupt anyone who comes forward in good faith to agree a manageable payment plan. I can confirm that HMRC is authorised to agree tailored repayment plans for those affected by the loan charge based on ability to pay. Where tax is payable under self-assessment, payment will of course not be due until January 2020. There is also no maximum repayment period, and plans of 10 years or more can be put in place where required. Further, I can announce today that HMRC is now forming a dedicated team focused solely on agreeing these manageable payment arrangements for those due to pay the tax they owe by way of the loan charge.
I have no time, I’m sorry.
The second very important matter I would like to address is the interaction between vulnerable people and HMRC regarding disguised remuneration and the loan charge, including where there are mental health issues. Let me make it clear that wherever HMRC is engaging with vulnerable people, it will do everything it can to ensure that they have all the support they need. This support includes a helpline that is dedicated solely to looking after loan charge customers, with a team fully trained to identify those who may be vulnerable and to provide appropriate support. Where necessary, HMRC will always refer individuals to the right external sources of support.
I have little time and I must cover the ground. HMRC also has a vulnerable customers team available to provide specialist, one-to-one support for vulnerable customers in need of it. Today, I can confirm that HMRC will be expanding its specialist service for customers with additional needs so that it will include anyone who finds their tax affairs under scrutiny. As we roll out that additional support, we will start with those affected by the loan charge as our first priority.
I appreciate that facing any tax bill is unwelcome, but it is only right that we deal with disguised remuneration. When we fail to do so, we are effectively saying to the 99.8% of taxpayers who have not been involved in these schemes that we expect them to pay more, and we deny our vital public services—our nurses, teachers, doctors, police and many others—the funding that they deserve.
Thankfully, I am not.
I thank all colleagues who have contributed to and participated in this debate, which has now taken place over two days. There were far too many colleagues to name individually in the time that is allowed to me, but what this has shown is a great display of cross-party working and cross-party consensus. At times like this Parliament shows itself at its very best, and I hope this goes some way to restoring some public trust in politicians and in Parliament. It has been clear from all the contributions that there has been unanimous—or almost unanimous—support for the motion.
Some very clear messages have come from this debate. Fundamentally, this is about the retrospective effect of the loan charge: people—our constituents—have acted in good faith and now face enormous bills, which, in many cases, can be devastating to them and their families. For me and others in the House, it is a clear breach of the rule of law and natural justice. Another message is that we are talking about ordinary people, not the mega-wealthy. We have to do more to pursue those who were the promoters of these schemes. Colleagues have very eloquently outlined their constituents’ concerns and concerns about how their constituents are being treated and pursued by HMRC.
I thank the Minister for his considered response. Although we take a different view on the policy of the loan charge, I have always found him to be a decent, courteous and engaging individual, who has always been willing to listen to my constituents’ concerns and act on them.
I am disappointed that there will not be a delay or an independent review of the loan charge. As the charge has come into effect, I hope that the Government will do all that they can to support individuals who find themselves in these circumstances and to show clemency and support to those who potentially face bankruptcy. I welcome the Minister’s announcement that additional support will be put in to help those individuals, but we have to bear in mind that the only reason why they have to receive any additional support is that they are being put in this position in the first place.
Those of us who have been campaigning against the loan charge are not going to go away any time soon. We will keep engaging and campaigning on this issue. As Parliament has shown over the last few weeks, we can find many innovative and creative ways to make a change in this place. I thank everyone for taking the time to participate in this debate to raise the concerns of their constituents, and I hope that we will support the motion in front of us this afternoon.
Question put and agreed to.
That this House
expresses its serious concern at the 2019 Loan Charge which applies from
is further concerned about suicides of people facing the Loan Charge and the identified suicide risk, which was reported to HMRC;
believes that the Loan Charge is fundamentally unfair and undermines the principle of the rule of law by overriding statutory taxpayer protections;
expresses disappointment at the lack of notice served by HMRC and the delays in communication with those now facing the Loan Charge, which has further increased anxiety of individuals and families;
is concerned about the nature and accuracy of the information circulated by HMRC with regard to the Loan Charge;
further regrets the inadequate impact assessment originally conducted;
understands that many individuals have received miscalculated settlement information;
calls for an immediate suspension of the Loan Charge for a period of six months and for all related settlements to be put on hold;
and further calls for an independent inquiry into the Loan Charge to be conducted by a party that is not connected with either the Government or HMRC.
On a point of order, Madam Deputy Speaker. I have in my hand the statutory instrument containing the regulations regarding the outcome of what I term the abject surrender that took place last night in Brussels. It was made at 3.15 pm today, and it was laid before Parliament at 4.15 pm—just three quarters of an hour ago. I raised some points earlier with the Speaker himself, which are on the record, and I just want to add to that by referring to the fact that we have a two-page explanatory memorandum for what is only about a six-line statutory instrument—for very good reason—and it includes, for example, reference to the commencement of section 1 of the European Union (Withdrawal) Act 2018. I just draw that to the attention of the House, because it is really important. It is essential that the public should know that this has been done. There are serious question marks over the legality of this, and there is likely to be a challenge in the courts, leading to the Supreme Court, on this issue.
I thank the hon. Gentleman for his point of order. The House knows how assiduous he has been in recent weeks—well, in recent decades—in making sure that the legality, the constitutional position, the propriety, the timing and so on of any matters that pass through this House are properly dealt with. I appreciate the points that he is making in relation to this statutory instrument, which has been laid this afternoon, but he knows, as the House knows, that it is not a matter on which I can give him an answer from the Chair. However, he has, in his usual eloquent way, drawn the matter to the attention of the House, of the Government and of the world in general. I thank him.