Let me say from the outset that I am no fan of tax avoidance. The law on disguised remuneration schemes should have been—and now has been, rightly—tightened, but the aggressive retrospective action taken by the Government in pursuing the loan charge policy and the profound effects that this has had on many people’s lives are quite simply unjust and unfair.
A significant number of people affected by the loan charge policy, including some of my constituents, are freelancers, contractors, locums and agency workers. When IR35 was introduced by the Government of the day in 1999, some of those who were employed by limited company or personal service companies sought and took professional tax advice and were advised to use umbrella company loan schemes instead, as those schemes were “tax law and HMRC compliant”. Acting in good faith and following the advice to the letter, many entered into these loan schemes. In some cases, particularly in the public sector, people were not even aware that they were being paid through loans.
When the loan charge was introduced in 2017, seeking to recover a 20-year retrospective tax charge for all remuneration paid in the form of a loan, those affected were rightly angered and aggrieved, particularly as HMRC lumped all the loans together into one and insisted on the tax being paid in a single year. The shock and stress of such a draconian and unjust measure caused intense pressure on many of those affected and their families. There have been seven known suicides by people who are facing financial ruin as a result of the demands of backdated tax from HMRC, even though it is questionable whether the tax was even owed. Relationships have broken down, and it has affected people’s mental health.
It is worth noting that HMRC has pursued individuals acting in good faith, rather than those who enabled the disguised remuneration loan schemes. Thankful for small mercies, the fact that HMRC is now only pursuing schemes going back 10 years, instead of 20, is to be welcomed, but many individuals are still caught by the current situation. It seems that, unlike in other areas of law, statutory time limits are of no consequence.
When the Prime Minister was running to be leader of his party, he promised a review of the loan charge situation. That review was led by Sir Amyas Morse, and the report was published in December 2019. While I welcome the recommendations of the Morse report, many of which the Government have accepted, unfortunately it does not go far enough. The report also has one fatal flaw: it concludes that the law was clear from 2010. There were a number of ambiguities at the time, such as the situation relating to those who are self-employed. If the law was so clear at the time, why did HMRC not enforce the law then, but instead choose to introduce the loan charge in 2017?
As a member of the loan charge all-party parliamentary group, I call on the Government to do a number of things. I ask them to amend the date from which the loan charge applies from 2010 to when the Finance Bill received Royal Assent in 2017; to ensure that closed tax years remain closed; to ensure that those with incomes of under £30,000 have any outstanding balances written off after 10 years; and to ensure that legislation covers business owners and directors, as well as individual contractors.
The Government and HMRC’s reputation has been damaged by the way that they have mishandled the loan charge situation. One principle that must underpin our legal and tax system is that things should be just and fair. Unfortunately, the loan charge and its aggressive application has been neither just nor fair.