Anthony Hall - stock.adobe.com
The chancellor, Rishi Sunak, is being called upon to instruct HM Revenue & Customs (HMRC) to revise its decision not to offer individuals caught within the scope of the government’s controversial loan charge policy more affordable settlement terms.
The three co-chairs of the Loan Charge All Party Parliamentary Group (APPG) have signed a letter addressed to Sunak imploring him to intervene, while also calling for the 30 September 2020 loan charge settlement date to be further delayed until the end of January 2021.
The letter said such a delay would give HMRC a more “realistic chance” of completing the settlement process, which is something the APPG claims it has neither the “time nor resource” to do now, because of the extra work it is having to do in the light of the Covid-19 pandemic.
“We are writing to implore you to instruct HMRC to offer a genuine, fair settlement opportunity which would allow many people to reach affordable settlement and also allow HMRC to collect some of the tax it claims it is owed (even though, as you know, this has never been legally proven),” the letter to the chancellor states.
“Despite the misleading impression regularly given, the reality of the current so-called ‘settlement terms’ being offered by HMRC is that they are grossly unfair and punitive, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount, both in total and in terms of monthly payments.”
The letter continues: “The payment terms that HMRC are insisting on are often far harsher than those imposed on people guilty of criminal offences such as fraud and theft which, as has been raised before, is indicative of the vindictive way those facing the loan charge are treated.”
The letter follows the publication of guidance last week by HMRC, which warned those affected by the policy to stop “holding out hope” of revised down settlement figures being offered to them, ahead of the 30 September deadline.
As things currently stand, this is the date by which those affected by the policy are expected to have provided HMRC with details on their 2018-19 self-assessment tax returns about their outstanding loan charge balances. This is also the deadline by which those affected should have arrangements in place detailing how they intend to pay back the tax that HMRC claims they owe.
As previously detailed by Computer Weekly, the loan charge policy is billed by HMRC as a clampdown on individuals it claims participated in disguised remuneration schemes between 9 December 2010 and 5 April 2019 by opting to be paid for work they did in the form of non-taxable loans.
In HMRC’s view, these loans were never intended to be repaid, should be reclassified as income and taxed accordingly. The loan charge settlements it is now seeking from those who took part in these schemes represent the amount of unpaid tax it claims these individuals owe.
Estimates suggest tens of thousands of those affected by the policy are IT contractors, many of whom have been left with huge, life-changing tax bills that they have no means of paying without falling into financial ruin or bankruptcy.
For this reason, the Loan Charge APPG and several other campaign groups have previously called on HMRC to consider asking those caught within the policy’s scope to repay a percentage of the total tax they owe. The tax collection agency has repeatedly and publicly dismissed this idea.
Read more about the loan charge
- Thousands of IT contractors are at risk of financial ruin as HMRC pursues them for tax it claims they owe on work they did up to two decades ago and were reimbursed for via loan remuneration schemes. Computer Weekly investigates.
- IT contractors, already facing life-changing tax bills as a result of the government’s controversial loan charge policy, are now facing a double hit of payment demands relating to their past involvement in loan remuneration schemes.
- HMRC’s behaviour is needlessly adding to the stress and anxiety suffered by contractors caught by its controversial loan charge policy, a cross-party group of MPs has been told.
At the same time, one of the many criticisms levelled at the policy is the fact that HMRC is doggedly pursuing the participants of these schemes, while failing to take to task the individuals who promoted these setups while marketing them as HMRC approved.
The Loan Charge APPG makes reference to this in its letter, while also making the point that not everyone affected by the policy knowingly used these schemes to avoid paying tax.
“To enter a settlement with HMRC over loan schemes, individuals are forced to declare wrongdoing and to state that they knew they had avoided tax, when for many people this is simply not the case,” the letter says.
“It is grossly unfair to force individuals to admit they have intentionally avoided paying tax and that they knew they were doing so. It has never been legally proven that this is the case, yet these individuals have been denied the right to defend themselves in court – a right which is afforded to all other taxpayers.”
It adds: “Settlements should be about HMRC seeking to reclaim some of the disputed tax it believes is owed, not about forcing individuals to admit guilt and knowledge of wrongdoing at the time, even when this is actually not true.”
The letter also states that, in cases where individuals have reached a settlement with HMRC, the agency has continued to seek payment from them, which is why the APPG is also calling for all settlements to be “full and final”.
“We are therefore writing to propose a fair, reasonable and affordable settlement opportunity that taxpayers could enter into without admitting wrongdoing and which represents full and final settlement of all obligations under the loan charge or open enquiries/assessments,” says the letter.
“This would not only remove the nightmare and reduce the very real risk of self-harm and mental breakdown for many people, but it would also give HMRC a far better chance of concluding settlements and bringing in disputed tax revenue, rather than resulting in many bankruptcies.”
Revising and refining settlements
As previously reported by Computer Weekly, the Loan Charge APPG and its member MPs have repeatedly called for all retrospective elements of the policy to be removed, and for it to become prospective. This means it would only apply to individuals who participated in loan schemes from when the policy came into force in November 2017.
In response to an independent review into the policy, overseen by former National Audit Office (NAO) comptroller Amyas Morse, published in December 2019, the start of the lookback period for the policy was cut by 11 years, moving the start date from 6 April 1999 to 9 December 2010. The change is said to have resulted in 11,000 people falling out of the loan charge policy’s scope.
According to the Morse review, this is because late 2010 marks the point at which the law governing the use of disguised remuneration schemes became clear, although this conclusion has emerged as a major point of contention in the wake of the review’s publication.
The Loan Charge APPG said it remains opposed to the policy’s retrospective elements, in a statement accompanying its letter to the chancellor, in which it outlines further details of the “fair, reasonable and affordable” settlements it is pushing HMRC to consider adopting.
“The APPG is urging the government and HMRC to offer a genuine and reasonable settlement opportunity that seeks to reclaim the disputed tax fairly, with the settled terms adjusted to reflect the reality of the benefit that people actually received,” it said.
In line with this, the APPG is proposing that individuals or small businesses affected by the policy are encouraged to voluntarily pay an income tax rate of 10% on their outstanding loan balances as a “full and final settlement”, which would enable HMRC to recoup at least some of the disputed tax.
As things stand, given the large sums in unpaid tax it is seeking, and the precarious financial situation facing many of those affected by the loan charge, HMRC may struggle to raise the projected £3.2bn in unpaid tax it is seeking through the policy, said Loan Charge APPG co-chair, Liberal Democrat MP Ed Davey.
“HMRC’s current settlement terms are simply unpayable for most people, so produces no money for the exchequer and only prolongs misery for the taxpayer,” he said.
“There needs to be a sensible and fair settlement opportunity that recognises the reality that, in many cases, it was the promoters of the scheme who benefited the most, so it is unfair to demand all the disputed tax from a scheme’s user.
“If HMRC offered taxpayers lower and affordable settlements, then HMRC should pursue other losses from the promoters – this is what is needed for a fair and final resolution to the whole issue of the loan charge.”
If the chancellor and HMRC were to throw their support behind these proposals, it would also allow those caught by the policy to get on with their lives, after having spent several years living under the shadow of these life-changing tax bills, said Loan Charge APPG co-chair, Conservative MP Mike Penning.
“The Loan Charge APPG still opposes the retrospective nature of the charge and believes that all taxpayers should have the right to access the legal process, but there also needs to be a conclusion to this whole issue to allow people to get on with their lives,” he said.
“So we urge the government and HMRC to do the right thing and announce a delay and genuine fair settlement opportunity to allow many people to settle under fair and affordable terms.”
Computer Weekly contacted HM Treasury and HMRC for its response to the letter, and received the following response from the latter agency’s press office on behalf of them both.
“The loan charge was introduced to tackle disguised remuneration (DR) tax avoidance schemes. It is the view of HMRC that loans made through these schemes have always been taxable. The government will continue to tackle this and other forms of tax avoidance vigorously,” the spokesperson said.
“HMRC has to be fair to all taxpayers, and this includes those who have already settled their use of DR tax avoidance schemes with HMRC or have never used tax avoidance schemes in the first place. As set out in HMRC’s Litigation and Settlement Strategy, they will only settle for an amount that is consistent with the law.
“The government has already extended the deadline for individuals affected by the loan charge to submit their 2018/19 self-assessment tax return to 30 September 2020,” the spokesperson added.
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