MPs are contacting HM Income & Customs (HMRC) to suspend its enforcement of the UK federal government’s controversial loan charge policy on the basis that there remains no “relevant or warranted legal basis” for it.
The guideline is included in a letter to Lucy Frazer, monetary secretary to the Treasury, signed by members of the 245-strong All-Party Parliamentary Loan Charge and Taxpayer Fairness Group.
The letter says: “The loan charge was not effectively scrutinised by Parliament when introduced, nor does it have any relevant or warranted legal basis– it needs to never ever have been passed and the federal government needs to now remedy this by revealing a legal modification, along with instructing HMRC to stop briefly any enforcement of the loan charge and associated accelerated payment notices.”
The seven-page missive also gets in touch with Frazer to respond to 10 “extensively investigated” concerns about the loan charge, which it claims neither the Treasury nor HMRC has actually fully resolved in their responses to date when quizzed about the inner workings of the controversial policy.
Reported in the 2017 Budget plan, the loan charge policy is created to help HMRC claw back the money it claims specialists in numerous markets– including IT– prevented paying in the past by opting to have part of their wage paid to them in the kind of non-taxable loans or annuities.
These loan-based remuneration schemes were typically run by offshore employee benefits trusts, and were incorrectly marketed as being an HMRC-compliant methods for contractors to boost their net earnings by synthetically minimising their employment tax liabilities.
Countless IT specialists who participated in these schemes between December 2010 and 5 April 2019 have considering that been landed with six-figure tax costs from HMRC through the loan charge policy, reportedly resulting in mass personal bankruptcies and at least 8 suicides.
The retroactive nature of the policy has seen HMRC repeatedly criticised for pushing ahead with it, as well as the reality that its efforts to clamp down on disguised reimbursement plans are disproportionately targeted at private participants instead of the organisations that run them.
Incidentally, one of the questions put to Frazer in the letter touches on this point, while also looking for confirmation from her about the exact variety of loan plan promoters and operators who have been prosecuted, founded guilty, arrested or fined through HMRC’s loan charge enforcement activities.
There is installing anecdotal evidence that a lot of the professionals who wind up registered in these plans have actually done so unintentionally, having been required by their end-clients to provide their services through a non-compliant umbrella business that serves as a front for the plan.
Under the terms of the loan charge policy, people have few avenues available to them to challenge or appeal against the sanctions bied far by HMRC, which is another location the letter calls on Frazer to address.
But the standout concerns resolved to Frazer in the file centre on the outcome of the 2019 independent review into the loan charge policy by Lord Morse, which saw the policy’s look-back period cut by more than 10 years.
“The main conclusion of the Morse report was that the ‘loan charge need to not use to loans participated in before 9 December 2010, being the point at which the law [on the use of disguised compensation plans] became clear’,” the letter says.
“That legislation, revealed in December 2010, just affected employees– there was absolutely nothing on the statute book for another seven years recommending they did not work for the self-employed. The 2011 legislation only used to employer-employee loans paid from a third party. It did not apply to self-employed plans or used plans where no 3rd party was involved.”
As previously detailed by Computer system Weekly, the Morse Evaluation’s conclusion that the law on using disguised remuneration schemes has actually been clear since 2010 has been consistently challenged by the cross-party group of MPs that comprise the Loan Charge APPG, as well as stakeholders from across the contracting community.
In the letter, the MPs claim that the law was “categorically unclear” on the use of loan-based reimbursement plans up until 2017, which is what prompted HMRC to propose the policy in the very first location.
“As monetary secretary to the Treasury and a QC, will you now make a public declaration to both challenge and rectify that problematic and unsound conclusion, by verifying that the loan charge legislation will be amended to reflect the truth of the correct legal position, which was clearly misconstrued by Lord Morse at the time of his evaluation,” the letter states.
The letter also demands that Frazer confirm the circumstances and criteria utilized to identify who would help Lord Morse with putting together the review, following the disclosure of flexibility of information requests that recommend this procedure might have been influenced by HMRC and the Treasury.
The letter concludes with a call for a “fresh and fully independent evaluation of the loan charge” to be carried out, in the face of growing cross-party support throughout your home of Commons from MPs and peers who disagree with the policy.
“We hope that you can now see the loan charge is not only a deeply questionable policy that undermines the guideline of law, however also that it is a problematic policy brought in without appropriate understanding and with deceptive rationale,” says the letter.
