It is a pleasure to serve under your chairmanship, Mr Walker. I must begin with a little grovelling and apologise in advance for having to leave this debate for a statutory instrument Committee. I am grateful to you for allowing me to speak, and to my hon. Friend Mr Baker, who secured this debate. It is of great importance not only to my constituents, but to those of many other hon. Members.
My constituents are concerned about the 2019 loan charge. They have tended to work as contractors or freelancers in the IT and professional services sphere, and they are now deeply concerned that HMRC’s actions over the loan charge will place them in serious financial hardship, if not outright bankruptcy. They suggest to me that they were encouraged by professional advisers or the contracting companies themselves to enter special payment schemes, which were deemed legal and allowed for scheme users to be paid in the form of a loan rather than ordinary remuneration. Resulting from poorly drafted IR35 legislation, such schemes are now deemed by HMRC to be disguised remuneration that amounts to aggressive tax avoidance. HMRC is pursuing affected constituents at a time when many are cannot easily recover their earnings.
My constituents fear that this action represents retrospective taxation, thereby undermining legal certainty and confidence in the tax system. They are also angry that the charge is being levied on contracting employees, despite a legal case involving Rangers, which judged the employer liable for any unpaid tax and national insurance. Given that for nearly two decades HMRC appeared to permit tax advisers and accountants to recommend the schemes without penalty, my constituents believe they have been let down by a system that should have alerted them to problems in a timely manner.
I have had a one-to-one meeting with the Financial Secretary on this issue in which he set out the Government’s position with clarity. I understand that scheme users will now be able to spread any payments to HMRC over five years should their taxable income this year be under £50,000. However, my constituents want to know why HMRC is not apparently being more robust in pursuing the tax advisers, accountants and contracting companies who took freelancers and contractors down this route in the first place.
One constituent told me:
“I decided to contract having been made redundant 3 times from what I considered safe and stable jobs. I have never in my life taken any state benefit. The only and main reason I signed up to a..scheme was because I felt that after a year as a self-employed person...the rewards did not justify the risks and with IR35...insisted upon by my employers”,
“the only route open for me to improve my take home pay”.
He goes on:
“I am not justifying any shortfall in the tax...that I maybe should or could have paid, but Government and HMRC” allowed
“schemes to flourish for years without redress...HMRC have chosen to inflict regular PAYE/NI rates, apply penalties and interest for open years and take no account of holidays, sickness benefits, pensions, training and out of contract time that freelancers have to finance themselves. Surely, even a concession on the rate being charged under the Loan Charge would be a fair and reasonable compromise?”
I must confess that without having access to the precise details of individual tax paid and the specifics of the schemes entered into, I have found myself caught between the concerns of constituents and the assurances of Ministers, who believe very strongly that the loan schemes clearly represented an illegitimate attempt to avoid tax. I fear, therefore, that the fairness and legality of HMRC’s actions will end up being determined in the courts by those with the tax expertise to look dispassionately at these matters. None the less, I wanted to raise these concerns in this afternoon’s debate in my role as a constituency MP, and I would be grateful if the Minister addressed the specific concerns that my residents have raised with me: namely, the apparent lack of action against culpable financial and legal advisers and employers, the calculation of tax owed, and retrospection in the tax system, which risks undermining wider confidence in the system.