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Loan Charge 2019: Sir Amyas Morse Review

Part of the debate – in the House of Commons at 2:05 pm on 19th March 2020.

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Photo of Stephen Metcalfe Stephen Metcalfe Conservative, South Basildon and East Thurrock 2:05 pm, 19th March 2020

I, too, congratulate my right hon. Friend Mr Davis and others on securing this important debate, and thank the Backbench Business Committee for allocating the time. It may not be the most pressing issue that we are facing at the moment, but it does address the deeply held concerns of constituents caught up in this injustice; and I say “injustice” because I truly believe that that is what it is.

This debate is to look at the Morse review, which did have some welcome outcomes, but I do not believe for one minute that it went far enough. I believe that everyone has a duty and an obligation to pay their fair share of tax, and that anyone who evades tax should rightly be sought out and made to pay. But that is not what we are dealing with here. In many of these cases, we are dealing with ordinary people who were either forced or persuaded into schemes that they were advised were perfectly legitimate and approved by HMRC. And there lies the problem. By way of example, I will share with the House an account of one of my constituents who is caught up in this situation and is facing a bill for tens of thousands of pounds, and potential financial ruin. I know that the Government and HMRC have said that that will not be the outcome, but after looking at the details of his case, I assure the House that it would be.

My constituent is an intelligent individual, but by no means a tax expert. When he gave up his job in 2011, deciding to work freelance so that he could get a better work-life balance, he was advised to join a freelancer scheme—a scheme that was established and promoted by an ICAEW-regulated chartered accountant. The promotional literature unambiguously stated that the accountant’s scheme was

“anodyne, with no tax avoidance motive (HMRC words) involved”,

“legal and compliant” and

“supported by tax counsel’s opinion ”.

At no point did the chartered accountant mention any known or future possible risks, either verbally or in writing.

The chartered accountant simply positioned my constituent’s use of the scheme—through which he would receive a combination of salary and loans—as perfectly legal and an “effective tax planning tool”. That said, in mid-2012, having noted some adverse media coverage of the subject of tax avoidance, my constituent sought confirmation from the promoter that the scheme remained truly “anodyne”, as had been stated when he joined it. The promoter’s response was unequivocal—that nothing had changed.

Later in 2012, a copy of an HMRC letter addressed to the promoter and dated 20 June 2012 was forwarded to my constituent in validation of the chartered accountant’s previous assurances that the scheme was legitimate. The letter confirmed that for the purposes of mandatory disclosure under disclosure of tax avoidance schemes legislation, HMRC’s anti-avoidance group had formally reviewed the scheme and determined that it could apply no “hallmarks” of tax avoidance. Therefore, and of critical significance, HMRC stated that the scheme was “not disclosable”.

The unambiguous contents of HMRC’s letter gave my constituent absolutely no reason other than to conclude that its anti-avoidance group had undertaken a full, diligent review of the scheme and that, in the absence of any adverse findings, he could continue to use the scheme safely. But even then, as a cautious person, my constituent sought further confirmation from the promoter and was again reassured. Why would he not carry on using a scheme when he has sought so many reassurances? I restate: if HMRC had even the slightest concerns about the scheme’ legitimacy and/or my constituent’s use of it, its failure to openly communicate such concerns denied my constituent the clear and obvious opportunity to immediately depart the scheme in mid-2012.

As it is, HMRC notified my constituent in late 2013 that it had opened a formal section 9A inquiry into his use of the scheme, at which point he immediately ceased to use it. Regardless of that, to this day, more than six years after that section 9A inquiry into my constituent’s use of the scheme was launched, it remains open, and he has yet to receive any technical argument from HMRC as to why it considers the scheme unlawful.

It is very clear to me that HMRC sees the loan charge as a panacea for its historical and obvious failures. It is attempting to bypass my constituent’s basic right as a taxpayer to have a court rule on any alleged additional liability. We have heard from countless hon. and right hon. Members, and from esteemed independent tax practitioners, that HMRC must at the very least be forced to desist from using the loan charge to drive through these retrospective, unproven and ordinarily out-of-time claims, which predate the enactment of the Finance Act 2017.

I strongly agree with that viewpoint and feel that it would be undeniably unfair and entirely unreasonable to pursue people from before that date. Therefore, in the light of the uncertainties caused by the current situation with coronavirus and its effect on freelancer’s ability to work and earn at this time, may I please ask that the existing legislation be amended so that the loan charge is made prospective from 2017 onwards, which would remove at least one level of uncertainty for this important group of people at this very difficult time?