HMRC’s efforts to claw back “unpaid” taxes through its loan charge have been dealt a potentially fatal blow.
A cross-party group of MPs led by Ed Davey has forced the government/Treasury to rethink the retrospective tax/anti tax avoidance measure aimed at freelancers and contractors.
The aim of the loan charge, set to feature in the April 2019 finance bill, is to end disguised remuneration schemes – where agency workers and the like were ‘loaned’ money rather than being paid a salary that would have attracted tax and NI. The “terms” of the “loans” were such that they would never have to be repaid.
The scheme gave HMRC the power to go back 20 years in pursuit of tax “avoiders”. This is where it ran into trouble and earned, with some degree of justification, the label “retrospective taxation”.
Review the policy
The government now has to review the policy before the end of March.
HMRC’s pursuit of retrospective loan charge taxes has been criticised by the House of Lords economic affairs, which said there was “disturbing evidence” and “reports of increasingly aggressive behaviour towards taxpayers”. It calls on the Government to reform the Loan Charge, which Lords declared is “clearly retrospective” and ”undermines basic principles of tax fairness and certainty.”
Mel Stride, finance secretary to the treasury, said the government accepted the call for the review but maintained that the disguised remuneration schemes were “gross aggressive tax avoidance.”
Ed Davey had this to say: “This review is about an important tax principle. The government are in effect in breach of the rule of law with the retrospective nature of their loan charge. And the unfairness of that has brought misery to thousands of people. While ministers have listened, the review that’s now been established must respond to the concerns of MPs…
“Treasury ministers have a duty to respond seriously and substantively.”
Loan charge action group spokesperson Steve Packham said: “We are delighted that MPs have forced the government into accepting a review of the appalling loan charge which, if it comes in, will destroy families and cost lives. This is a victory for the campaigners, for parliament and for the rule of law.” He said it was vital the review was “genuine” and not a “whitewash”.
Phil Manley, partner at DSW Tax Resolutions and a LCAG campaigner added: “Despite being forced to concede defeat, it was an appalling and utterly ungracious response from Mel Stride. He conceded to having a review, but then tried to preempt its conclusion, parroting the same misleading information the Treasury have been peddling for months.
“As he knows full well, but again deliberately misrepresented, the Rangers case says employers are liable, not employees!
“He also continues to claim that the schemes were defective, but he knows that this is meaningless and has no basis in law, especially as he also knows the schemes were legal at the time.
“So we need some honesty at last from him and the Treasury. We call on the Government to now, at last, listen to the overwhelming evidence and majority parliamentary support for reform to this manifestly unfair legislation before it destroys the lives of tens thousands of families in just three months’ time.”