Loan Charge

Part of the debate – in the House of Commons at 4:39 pm on 11th April 2019.

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Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 4:39 pm, 11th April 2019

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.