MPs increase pressure on Government's Loan Charge

• 22 Nov 2018

With as many as 50,000 contractors experiencing great distress and bankruptcies as a result of the 2019 Loan Charge, the Government must urgently stop applying the taxation retrospectively, a group of cross-party MPs told a packed Westminster Hall Debate this week.

On Tuesday, with John Glen, MP and Economic Secretary to the Treasury, in attendance, a group of MPs led by Steve Baker, MP for Wycombe, called on the Government to urgently alter its approach to a tax that HMRC itself conceded will cause some individuals to “become insolvent”.

According to MPs, up to 50,000 individuals were “drawn, or even driven” into previously legitimate schemes and are now experiencing severe stress as a result of the retrospective tax.

Earlier this year, a group of 103 MPs signed early day motion 1239, which called on the Government to significantly revise the legislation. Twelve of them – along with their constituents – were in attendance on Tuesday to warn Mr Glen of the hardship the tax was causing.

Zac Goldsmith, MP for Richmond Park West, called the Loan Charge “abhorrent” and Bim Afolami, MP for Hitchin and Harpenden, said it “undermines the trust of those people and their families and communities in our Government”.

Meanwhile Peter Aldous, MP for Waveney, said HMRC were pursuing “easy targets –individuals who have acted in good faith, are not well off and do not have their own bespoke financial advisers and accountants.

“The people affected have become a target. They are vulnerable people. They are not well paid and do not receive many of the benefits and protections that payroll employees do: sick pay, holiday pay and maternity and paternity leave.”

IPSE advice

IPSE has long advised its members against using Employment Benefit Trust (EBT) schemes. However, the Government’s retrospective approach to this issue is clearly causing serious distress for many taxpayers and their families.

In many cases, the repayment demands are sizeable and connected to arrangements that were made many years ago on the advice of barristers and unscrupulous scheme providers who profited from their use.

In a letter to Chancellor Philip Hammond in October, IPSE urged the Government to focus its compliance efforts on those who created, enabled and profited from EBTs.

Westminster Hall

On Tuesday Mr Baker was one of a number of MPs to question HMRC’s approach to the tax; both in terms of who it targets and how it targets them.

“The loan charge should apply from Royal Assent onwards,” Mr Baker told the debate.

“In other words, it should be prospective – a case I have made many times – not retroactive or retrospective. HMRC should be more proactive in advising that such schemes are likely to end in tax charges in the future, and perhaps far into the future.

“More steps should be taken against promoters and introducers of such schemes. The promoters of these schemes have ended up luring people into misery through what they have done. I make it very clear that I place the blame on the promoters of these schemes.”

Led by Sir Edward Davey, MP for Kingston and Surbiton, many MPs praised Mr Baker for bringing the issue to the attention of the house.

Sir Edward said that, henceforth, MPs should be “working cross-party ahead of the Report stage of this year’s Finance Bill to put together a new clause that deals with the problem, under which any loan charge would come into effect only after Royal Assent of the Finance (No. 2) Act 2017.”

Once the 12 MPs in attendance made their speeches, Mr Glen, representing the Treasury, said:

“I am happy to concede that for the 50,000 individuals affected, those with responsibility are those who promoted the scheme. It is absolutely the case that HMRC is pursuing those individuals. They often promoted the scheme to large numbers of individuals.

“Five cases are before the courts – that seems a small number, but each one covers a large number of individuals – and there has been a judgment in one, with the other four cases still moving through the courts.

“While I have tremendous sympathy for those facing large tax bills, it is unfair to let people get away with not paying the tax they owe. There is support for people who have used the schemes and now find themselves in difficult situations, which require those affected to approach HMRC and bring the matter to a close.” 

After summarising the criticisms of the retrospective tax and the MPs’ recommendations to the Treasury, Mr Baker closed the proceedings by saying: “I really hope that the Treasury goes away, looks at the measure again and eliminates retrospection. When people have acted in good faith under advice and end up subject to injustice, we must uphold the principle of the rule of law.”

A full transcript of the debate is available here.