Finance Bill

Part of the debate – in the House of Commons at 7:50 pm on 27th April 2020.

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Photo of Sally-Ann Hart Sally-Ann Hart Conservative, Hastings and Rye 7:50 pm, 27th April 2020

I endorse the comments on the gaps in the financial support but, at the request of several of my constituents in Hasting and Rye, I wish to highlight the measures on the loan charge in clause 16.

There is no doubt that the loan charge is an anti-avoidance measure: it was introduced in the Finance Act 2016 to address the tax lost to the Treasury through a variety of disguised remuneration schemes. In the 2016 Budget, the Government announced a package of changes to tackle the existing disguised remuneration avoidance schemes and prevent their further use. The loan charge was introduced as a new charge on disguised remuneration loan balances outstanding at 5 April 2019. It is absolutely right that the Government take action to ensure that everybody pays the taxes that they owe and contributes towards the publicly funded services from which they benefit.

In September 2019, the Government commissioned Sir Amyas Morse to lead an independent review of the design and implementation of the loan charge. Sir Amyas was asked to consider whether the policy was an appropriate response to the tax avoidance behaviour in question, and whether changes that the Government had previously announced addressed any legitimate concerns raised. The review was published in December, alongside the Government’s response, which welcomed Sir Amyas’s acknowledgement that disguised remuneration schemes are a form of tax avoidance, but recognised the concerns raised by the review about the impact of some aspects of the loan charge. The Government have, in this Bill, accepted all but one of the review’s recommendations.

The review found that legislation announced in 2010 removed any doubt that tax was due. However, it is argued that the law was not clear on tax after 2010, as explained by Members in this House on 19 March this year. I will not revisit those arguments. The all-party group on the loan charge formally disputes the review’s finding that the law on the use of loan schemes became clear from December 2010.

It has also been argued that some of those caught by the loan charge were misled and, in some cases, coerced into entering schemes as the only way of securing a job. Although the loan charge was intended to shut down loan schemes, the Morse review found that the use of some schemes continues to be extensive in the 2019-20 tax year, with more than 8,000 individuals having entered into schemes between April and October 2019. Some promoters and professional advisers are still selling schemes, in spite of the law becoming clear from November 2017. That needs to stop.

My concern centres around the retrospective aspect of the loan charge. The loan charge does not change past liabilities, because it is a new tax on loans outstanding as at 5 April 2019. It changes the current tax effect of previous events and therefore brings past tax years back into charge. It is structured to correct past avoidance. In common law there is a presumption that a statute does not have retrospective effect, largely because of the serious injustice that that could engender. However, retrospective legislation is not necessarily unconstitutional, and legal argument and case law is available to support that view.

Retrospective legislation can right a wrong when law is an ass, but when it is used to penalise retrospectively, it undermines public confidence in the rule of law. A person must know in advance whether their conduct is or is not legal. There is no punishment without law. The rule of law is fundamental to our democracy. It ensures accountability and trust in our institutions. The principles of the rule of law, including legal certainty and open government, are the processes by which the laws are enacted, administered and enforced. They are accessible, fair and efficient and must be respected and not undermined.

I am speaking on behalf of my constituents in Hastings and Rye and providing them with a voice. They have ended up as victims of the loan charge. I am asking for a just decision to be made that the loan charge takes effect from the date of Royal Assent of the 2017 Finance Act. That would avoid the retrospective element, and would give certainty from that point onwards regarding loan arrangements.