Mushy - Fotolia
An email sent by HM Revenue & Customs (HMRC) CEO Jim Harra where he admits to having “very little success” with finding legal backing for the government’s controversial loan charge policy has come under scrutiny once more, this time by the Economic Affairs Committee (EAC).
During a 90-minute online evidence sharing session, Harra and HMRC’s director for counter avoidance, Mary Aiston, were quizzed by the Committee’s members about the department’s positioning and approach to policing the loan charge policy.
The session kicked off with a series of questions about an email Harra sent in 2019, which was unearthed in a document dump obtained via a Freedom of Information request in April 2021, where he appeared to call into question the legal basis for loan charge.
Introduced in 2017, the policy enables HMRC to reclaim the tax it claims tens of thousands of contractors avoided paying by participating in loan-based remuneration schemes between 9 December 2010 and 5 April 2019.
The policy has effectively seen HMRC retrospectively reclassify these loans as income, which makes them taxable, resulting in contractors in a range of industries, including IT, being saddled with life-changing tax bills pertaining to work they did between December 2010 and April 2019.
HMRC has consistently maintained that it has never approved the use of loan schemes.
An independent report into the loan charge policy, by former National Audit Office (NAO) comptroller Sir Amyas Morse, concluded in December 2019 that the “legal position” on the use of disguised remuneration mechanisms became clear in December 2010.
Read more about the loan charge
- The IT contractor community shares its verdict on the UK government's plans to revamp its controversial loan charge policy, which has left thousands of people facing life-changing tax bills and financial ruin.
- A document dump of emails shared between HMRC officials has prompted loan charge campaigners to further question the legal footing of the government’s controversial disguised remuneration policy.
This declaration was called into question earlier this year by anti-loan charge campaigners and tax barristers following the disclosure of 31 January 2019 email, which made reference to the social media discourse created by a Treasury Select Committee hearing the previous day about loan charge-related matters that Harra participated in.
“The main substantive comments are… HMRC persistently claims that [disguised remuneration] schemes never worked, but despite allegedly challenging [disguised remuneration] schemes for the last 20 years, we have not obtained tribunal/court decisions that back up this claim,” said Harra in the email.
“In particular we have not obtained decisions establishing that individuals are taxable on [disguised remuneration loans] as income.”
He then follows up on this comment by going on to detail his own abortive attempts to secure “legal analysis” to backup HMRC’s justification that loans should be taxed as income.
“In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim with very little success,” he wrote. “For yesterday’s hearing we were initially given a summary of [tax] avoidance wins, some of which seemed to have nothing to do with [disguise remuneration].”
HMRC has sought to downplay the significance of the email since it came to light in April 2021, citing its 2017 victory in the Supreme Court against Rangers Football Club, which had previously used loan-based remuneration schemes to pay its players and senior executives, as providing sufficient legal precedence to support its views that loans should be treated as income and taxed accordingly.
Probing the problematic email
During the Economic Affairs Committee hearing on Thursday 15 July, Harra was asked again to account for the contents of the January 2019 email, where he appears to call into question the legal basis for the policy.
Harra told the Committee the contents of the email had been “overplayed” because HMRC was clear on the legal arguments at the time for taxing disguised remuneration users, in the wake of the Rangers case.
“I did feel that we needed to be more proactive in refuting what was being said about HMRC and about the basis for what we were doing,” he said, during the session.
“At the time I was frustrated that misinformation really was going unchallenged and HMRC’s views were not cutting through the public discourse.
“Specifically, in relation to that email, I felt that for my appearance at the Treasury Select Committee, I hadn’t been given the briefing that I felt I needed in order to make those points,” he said. “So that’s really what I was referring to.”
Committee member Lord Forsyth then asked about past criticism directed at HMRC that it overstates the importance of the Rangers case in its enforcement of the loan charge.
Harra said he rejected that viewpoint, and claimed anyone who does dispute HMRC’s view that these loans are taxable has the right to challenge its stance at tribunal, and that there are cases going through the courts with that in mind at the moment, he continued.
“Our [past] approach [to addressing disguised remuneration] was to try and litigate cases to establish what the legal position was. That took quite a long time, and it wasn’t until the 2017 decision of the Supreme Court that we got that precedent with Rangers, which did say that these payments are taxable and these schemes do not work to avoid tax,” he said.
“The facts of [every case] are not all the same, and at different stages the law has been different as well, so it’s not a straightforward thing to explain. But, nevertheless, I did feel that we ought to be defending ourselves more in the discourse than we were at the time,” he added.
Another member of the committee, Lord Bridges, then interjected to query a point raised during the Morse review of the loan charge, about whether the legal stance on using disguised remuneration schemes has always been clear to taxpayers, to which Harra admitted it had not.
As proof of that Harra, pointed to the first iteration of the loan charge policy, which targeted people who had joined loan schemes as far back as April 1999. The Morse review, however, advised the government to trim 11 years off the off the original 20-year look-back period for the policy on the basis that the law on using loan schemes was not made clear until December 2010, with the passing of the 2011 Finance Bill.
“I will accept for a significant period the law was not clear, that’s why we are litigating and why we are still litigating. HMRC was clear that we had a legal basis for challenging disguised remuneration schemes,” Harra said. “I’m not claiming that the law was always clear. It’s a very complex area.”
Steve Packham, spokesperson for the Loan Charge Action Group (LCAG) campaigners, said the answers Harra gave during the session suggest HMRC is “acutely embarrassed” at the contents of the FOI emails.
“The members of the Committee were right to press Jim Harra on his email where he clearly admits that he couldn’t find legal analysis to back up HMRC’s strategy of pursuing individuals and [the committee] forced an admission that HMRC have no such opinion,” Harra added.
“Committee members were right to point that out that if the law was not clear even to HMRC, it was not clear for ordinary people and certainly not clear enough to justify pursuing individuals in this life-ruining way.”
Speaking to Computer Weekly, tax barrister Keith Gordon seemed similarly unconvinced by the response the committee received to its questions.
“Jim Harra’s response was quite extraordinary. He explained the difficulty as the fact that each case must be looked at separately, on its own facts and based on the particular set of laws in place at the time. However, if things were so difficult and no single legal opinion could be given, why would Jim Harra have expected to obtain such an opinion?”
He added: “More importantly, all HMRC briefings about these arrangements have treated these schemes and the circumstances behind them as identical. Indeed the loan charge policy is specifically a single response to cover what Harra is now suggesting is a wide range of different types of case.”
Loan charge exposed
Meanwhile, Dave Chaplin, CEO of contracting authority ContractorCalculator, said the session has succeeded in “fully exposing” the loan charge policy as a “highly damaging retrospective tax” designed to “bulldoze through longstanding taxpayer protections”.
“[Its] sending thousands of victims of unscrupulous operators into bankruptcy, and [its] all forced through parliament by HMRC and ministers based on misleading information. It is a massive scandal of its own making,” he said.
“There’s a saying – when you’re in a hole, stop digging. HMRC continue to dig, but today finally hit the concrete floor of incontrovertible facts – that the loan charge breaches the rule of law.”
Computer Weekly contacted HMRC for a response to LCAG, Gordon and Chaplin's comments on Harra’s appearance during the session, and received the following statement: “We encourage any customers who are worried about paying their loan charge liability to please contact us and we will be able to help them. We have been clear that we will work with customers to enter manageable payment plans to spread their tax liability and ensure that they are affordable.”
Read more on IT legislation and regulation
Loan charge MPs want contractor adviser community to participate in latest call for evidence
Cross-party group of MPs calls on Loan Charge contractors to participate in call for evidence
Loan charge: Tax experts call on chancellor for simpler, more affordable policy settlement terms
Loan charge: MPs call on financial secretary for new independent review into HMRC policy