Treasury hypocrisy on Loan Charge legislation highlighted in the House of Commons

LCAG Media Release 14th December 2018

Treasury minister’s hypocrisy over the retrospective Loan Charge tax time bomb was exposed at Treasury Questions in Parliament on the 11th December.

Calling for fundamental reform to the 2017 Loan Charge legislation, Zac Goldsmith MP (Conservative, Richmond Park), reminded the Financial Secretary to the Treasury and Paymaster General Mel Stride (Conservative, Central Devon), that:

“When criticising a labour budget in 2005, my Right Honourable Friend, the Chancellor, said, “the taxpayer is entitled to be protected from retrospective or retroactive legislation”, but through the 2019 Loan Charge that is precisely what HMRC is now doing to thousands of people who acted in good faith and in accordance with the rules at the time.“

He proceeded to then ask:

“Can I ask my Right Honourable Friend once again to not back date the Loan Charge to before 2017?”

In reply, Mr Stride conceded that “the arrangement that has been entered into around disguised remuneration, and for which the Loan Charge is being applied, were always defective at the time that they were being used.”

‘Defective’ is a fundamental change from the ‘tax avoidance and evasion’ rhetoric previously used by the Treasury and HMRC to defend its aggressive pursuit of contract workers caught up by this flawed tax legislation.

The exchange places more pressure on the Government and Treasury for an overhaul of the legislation, a demand that has won the support of over 100 cross-party MPS for an Early Day Motion (EDM 1239)  The request to amend the legislation was also powerfully reinforced by a House of Lords Report (4th December 2018) which called on the Government to change the unfair and ill-considered Loan Charge, which the Lords have declared is “clearly retrospective” and undermines basic principles of tax fairness and certainty.

Thousands of freelance workers are facing bankruptcy, anxiety and stress due to the draconian Loan Charge which breaks normal legal convention and allows HMRC to go back twenty years, demanding huge tax bills for arrangements that were legal and declared to HMRC at the time.

The victims – who include social workers, teachers, doctors and nurses, as well as IT contractors – followed professional advice and submitted their tax returns every year, with HMRC never challenging them at the time. They now face life-destroying tax bills they cannot pay and cannot fairly appeal.

The report by the House of Lords Economic Affairs Committee said they were given, “disturbing evidence” on the government’s approach to the loan charge and “reports of increasingly aggressive behaviour towards taxpayers”.   

The shocking reality of HMRC’s aggressive and unreasonable pursuit of people was clearly outlined in many witness statements, leading the Committee to conclude: ​“We were disturbed to hear accounts of HMRC threatening individuals with arrangements that could result in bankruptcy, where individuals clearly have no assets to settle liabilities”.

The House of Lords Committee has called for immediate changes to the Loan Charge legislation and has backed the calls made by the Loan Charge Action Group and by MPs for HMRC to establish a dedicated helpline to give support and assistance to those affected by the loan charge.

Campaigning organisation the Loan Charge Action Group (LCAG) Spokesperson, Richard Horsley said:

“We are very grateful to Zac Goldsmith for raising the unfair Loan Charge in Parliament and exposing the hypocrisy that underpins its introduction, with the Chancellor himself on record as opposing retrospective tax legislation when in opposition, but now introducing it when in power.”   

“Our members and thousands of other contract workers are being persecuted for entering employment arrangements that were perfectly legal, and advised or encouraged, at the time, by their employers, agencies and advisors.”

“Introducing legislation to enable retrospective taxation is inherently wrong and against public interest. All the evidence and opinion says so, yet this government and HMRC remain in denial, preferring to pursue innocent, soft tax targets, in other words ordinary workers, rather than the big corporate tax avoiders it really should be tackling. We urge the government and Treasury to listen and now repeal the backdating of this unfair policy.”  

ENDS

Notes to Editors

Media Contact: Mark Sebright – [email protected] / 07504 042613

1. About the Loan Charge Action Group: The Loan Charge Action Group seeks to raise awareness and reform of the retrospective IR35 tax charge introduced by HM Treasury in the 2017 Budget and build a community where affected individuals can find information and support. The Group does not provide any form of chargeable service or professional advice. Visit www.hmrcloancharge.info

2. LCAG members’ survey: In summer 2018, LCAG surveyed 500 of its members about the impact of the Loan Charge and the following were the responses as to how if was affecting people:

3. House of Commons Early Day Motion 1239: That this House expresses its concern at the 2019 Loan Charge; notes that it is retrospective applying back to 1999; further notes that as a result of the introduction of IR35, umbrella companies were set up and recommended by professional advisers and employment agencies; recognises that the Charge will affect contractors, freelancers and agency workers, including social workers, supply teachers and bank and locum nurses and doctors; notes that employment was not an option and in some cases the company or organisation insisted on those arrangements, including to avoid paying National Insurance; notes that these individuals did not receive sick or holiday pay; believes it is unfair that HM Revenue and Customs (HMRC) are pursuing people who acted in good faith rather than the client organisations, agencies or umbrella companies all of whom benefited significantly; notes that HMRC are aggressively pursuing individuals through Advanced Payment Notices with no independent right of appeal; further believes that the Charge is likely to cause financial distress and bankruptcies, impeding HMRC’s ability to recover these tax liabilities and causing a devastating impact on people; believes that retrospectively taxing something that was technically allowed at the time, is unfair; calls on the Government to revise the legislation to avoid significant damage to independent contractors and freelancers in the UK; and calls for the Charge to apply only to disguised remuneration loans entered into after the Finance Act 2017 received Royal Assent. For full register of MPs supporting Parliamentary motion see https://www.parliament.uk/edm/2017-19/1239

4. The Loan Charge has also been raised in the House of Commons (Treasury questions on 3rd July 2018) as follows:

• Stephen Lloyd MP (Liberal Democrat, Eastbourne): “Recent media reports have identified the severe impact of this huge retrospective charge on the mental health of some of the contractors, Mr Speaker, I’ve real concerns about their wellbeing.  Will the Minister commit to setting up a 24-hour helpline to provide support for individuals caught in this trap?”
• Peter Aldous MP (Conservative, Waveney): “The retrospective nature of the 2019 Loan Charge could bankrupt thousands of people. Will the Government revise legislation to ensure this does not happen with the Loan Charge only applying to disguised remuneration loans made after the 2017 Finance Act?”.