Victory for LCAG! Supportive MPs force Government to concede review on Loan Charge!

LCAG Media Release 8th January 2019

The Government have been forced into a humiliating climbdown by cross-party MPs over the controversial 2019 Loan Charge. Despite attempts by Conservative Whips to coerce MPs, Government Ministers knew they had failed when many backbenchers made clear they would support calls for a review of the Loan Charge in the Finance Bill today. With the DUP also opposing the Loan Charge, the Government  climbed down in the face of an embarrassing defeat, having already suffered one earlier regarding Brexit.

Sir Edward Davey MP (Liberal Democrat, Kingston and Surbiton) had tabled a cross-party amendment, New Clause 26 (#NC26) to the Finance Bill, calling for a review of the Government’s controversial 2019 Loan Charge. A total of 38 MPs from across the political spectrum had signed the amendment by yesterday and many more MPs came forward to support NC26 today and join the debate on the clause. The only individual defending the Loan Charge was the increasingly isolated and discredited Treasury Minister, Mel Stride.

The Loan Charge, due to come into effect in April this year, would see thousands of freelance workers facing bankruptcy, homelessness and breakdown. The draconian Loan Charge overrides all regular taxpayer protections and allows HMRC to go back twenty years, demanding huge tax bills for employment arrangements that were legal and fully declared to HMRC at the time.

Victims, which 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 that they cannot pay or appeal to an independent tribunal or court.

Sir Ed Davey’s successful amendment forces the Government to conduct a review of the policy and to do so before the end of March. Sir Ed and other supportive MPs had sought to table an amendment removing the retrospective element of the Loan Charge, but were prevented from doing so. In a cynical move, the Government failed to table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill.

Despite this the review of the Loan Charge that will now take place will ensure that  the Government faces the truth about the damage their ill-considered policy will do to individuals, to the contracting industry in the UK, as well as to the economy and public services.      

Opposition to the retrospective Loan Charge has already attracted widespread political support. Over 100 cross-party MPs, including Conservatives and DUP MPs, have signed an Early Day Motion calling on the Government to ‘revise the legislation to avoid significant damage to independent contractors and freelancers in the UK’.

HMRC’s unfair and aggressive pursuit of retrospective Loan Charge taxes has also been damned in a powerful report published by the House of Lords Economic Affairs Committee on 4th December 2018, which said there is “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.”

Many people would be unable to work again if hit by the charge and two people facing the Loan Charge have tragically committed suicide, one citing the policy.  

Sir Ed Davey commented:

“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 across the House.

“Treasury Ministers have a duty to respond seriously and substantively.”

LGAG 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.

“Thousands of families are extremely grateful to Sir Edward Davey for tabling this important amendment and to all those MPs who signed it and pledged their support. Many individuals facing life-ruining bills for tax that they do not believe they owe for schemes that were always legal now have some hope that this draconian retro-tax grab will be halted.  

“The review, though, must be a genuine one and not a whitewash by the Treasury, who have spent months misleading MPs and covering HMRC’s failures. If it is genuine, like the recent House of Lords report, it will expose the reality of this damaging and unfair measure.

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.”

ENDS

Notes to Editors

Media Contact: Mark Sebright – [email protected] / 07988 680796

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 hmrcloancharge.info

2. The report of the House of Lords Economic Affairs Committee (4^th December 2018) is mentioned here https://www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-finance-bill-sub-committee/news-parliament-2017/powers-report/ and the full report is here https://publications.parliament.uk/pa/ld201719/ldselect/ldeconaf/242/24202.htm

3. 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:

4. 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