2019 Loan Charge — [Mr Charles Walker in the Chair]

Part of the debate – in Westminster Hall at 2:30 pm on 20th November 2018.

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Photo of Steven Baker Steven Baker Conservative, Wycombe 2:30 pm, 20th November 2018

I beg to move,

That this House
has considered the effect of the 2019 loan charge.

I will take a moment to say how glad I am to serve once again under your chairmanship from the Back Benches, Mr Walker.

It is right that everyone, both individuals and corporations, should pay the correct amount of tax, and I welcome the Government’s commitment to a fairer tax system. I was pleased to see that the UK’s tax gap has fallen to a record low of 5.7% in recent months.

I should start by explaining what the loan charge is. The gov.uk website explains:

“Loan schemes—otherwise known as ‘disguised remuneration’
schemes—are used to avoid paying Income Tax and National Insurance.”

The loan charge was announced at the 2016 Budget. The policy ensures that users of tax avoidance loan schemes pay their share of tax and is expected to protect £3.2 billion for the UK’s vital public services. The website also says:

“The loan charge works by adding together all outstanding loans and taxing them as income in one year.”

Therein lies the difficulty and the fundamental cause of the impact on individuals and families.

In 2005, my right hon. Friend the Chancellor said:

“Certainty and transparency are the hallmarks of a fair, effective and competitive tax system. A taxpayer is entitled to know with certainty…what he may or may not do in planning his tax affairs.”—[Official Report, 7 June 2005;
Vol. 434, c. 1139.]

That is why I object to retrospective legislation that undermines the rule of law.

The introduction of the 2019 loan charge has been beset by challenges, confusion and complications. Over 100 MPs have signed early day motion 1239 calling on the Government to significantly revise this piece of legislation. I am glad we are meeting today in this well-attended debate to consider the impact of the loan charge.

In the 2016 Budget, the Government announced that they would introduce legislation to tackle disguised remuneration schemes. Statutory provision was included in the Finance (No. 2) Act 2017, with further provisions included in the Finance Bill introduced after the autumn Budget last November, now the Finance Act 2018. The Government say they will protect £3.2 billion by taking action to tackle both historic and continued use of these schemes. That is a not inconsiderable sum. It will include a new charge on loans paid through disguised remuneration schemes that have not been taxed and are still outstanding on 5 April 2019.

Her Majesty’s Revenue and Customs states that the schemes affected by the 2019 loan charge were not and never have been legal. However, that is disputed by the Loan Charge Action Group. I refer to a letter by the Chancellor of the 19th of this month, published today on the Treasury Committee website. The Chancellor writes:

“Finally, I would like to clarify my comments to the Committee in reference to the use of disguised remuneration (DR) schemes which I described as ‘tax evasion’. I should have said ‘tax avoidance,’
and that in the Government’s view, tax was always due.”

That is a very important distinction, because evasion is illegal, while avoidance is an undesirable and unintended use of Parliament’s legislation. In drawing that distinction and correcting the record to say “avoidance”, the Chancellor has made an important concession.