Loan Charge distress
In the second half of 2018, the House of Lords Economic Affairs Committee took considerable pains to review the provisions of the then Finance Bill and produced a report (see link below). This report benefited from hearing evidence, written and face to face, from a number of experts and those working in tax. We were honoured to have been invited to attend the committee and Graham Webber, Director of Tax delivered powerful testimony, much of which features in the final version.
Mr Norman’s predecessor (Mel Stride) refused three invitations to attend the committee and answer some of the trenchant criticisms of the HMRC (non)performance in dealing with contractors. These criticisms specifically targeted the blatant and damaging “loan charge” which threatens to destroy pensions, savings, retirements, new businesses and disrupt family life on a huge scale.
Sadly, we now know that the stress of the loan charge has claimed lives – a fact that initially the highest Treasury officials and elected Ministers denied. Their Lordships were far more prescient in their consideration of this retrospective tax and called for a review, citing examples of the damage it would do to those who could not be considered affluent by any measure.
The storm around the charge continued to build with Treasury Select Committee subjecting senior HMRC officers to hostile questioning. Their responses can only be termed as elusive at best and in instances, shy of the truth.
What he knows. What we know.
In attempt to achieve a level of clarity, MPs came together and formed an APPG. They forced a debate in the Commons chamber that decided, unanimously, that the loan charge was unfair and unwanted. HM Treasury ignored the will of Parliament, the evidence of their own committee and the purpose of the second chamber.
In the light of the above history why are we so aggrieved by Mr Norman’s performance in front of the same Economic Affairs Committee on 16th July?
Clearly, Mr Norman has read the report, has considered the evidence before all committees and has followed the debate forced by APPG. He has engaged with professionals in the industry, taxpayers themselves and has taken time to understand how destructive the legislation is.
In response, he has then picked a form of words that at face value seem to concede some minor points and present them as major breakthroughs, but in truth, will affect virtually no taxpayers at all. By playing upon the ambiguous phrase “closed year” he has sought to distract the committee – an effort that was evidently not successful due to Baroness Noakes’ excellent response.
We are of course talking about Mr Norman’s assurance that if taxpayers have made a full disclosure and the enquiry has subsequently been closed the Loan Charge will not apply.
The Committee and Mr Norman know that many taxpayers completed their tax returns in accordance with their legal obligations. They know that there was no requirement to add additional information. They know that many taxpayers are convinced that they have complied.
Mr Norman now appears to say that only a “full” disclosure, i.e. more than legally required, followed by an in time HMRC enquiry (not common) and a subsequent closure of the enquiry (how?) will exclude a taxpayer from the loan charge. He knows that this situation occurs only by exception.
The Concept of Staleness
Some of our clients have enquiries which have been outstanding for over ten years, despite full disclosure being made many years ago. As a result, we continue to assert the concept of staleness on behalf of our clients with increased vigour, determining that if the enquiry has not been progressed despite HMRC having all the facts it is stale and should be closed. If successful, surely it follows that the enquiry would then be closed and, as Mr Norman suggests, the Loan Charge would not apply?
Further, is this announcement within HMRC’s gift? If the Loan Charge is a charge on a new source, why does a closed enquiry on the original source have any bearing on the application of the Loan Charge? We can only assume that a closure would be regarded as HMRC discharging the tax liability therefore removing the disclosure requirement under Part 35A, Schedule 1 FA 2018. So, for two people in the same arrangement at the same time, one who received an enquiry that was subsequently closed and one who didn’t receive an enquiry at all due to HMRC error, two entirely different tax consequences emerge. Clearly, this contradicts tax certainly and the tax payers’ charter.
Watch this space for pending actions here.
It is our opinion that this is a dissembling attempt to deflect the universal criticism of the loan charge policy and legislation. Mr Norman has ignored the reason why the charge was deemed necessary in the first place, which was to make up for the incompetency of HMRC. It failed to act on the use of “schemes” by raising enquiries as permitted in law, despite having disclosure of such use.
He has ignored the will of Parliament. He has ignored the purpose of the second chamber. He has ignored the lives that have been lost and those who remain under tremendous mental and financial strain.
Already this week, we have fielded calls from clients and non-clients who have been in tears and openly contemplating suicide. We will continue to be constructive and supportive but being on the receiving end of these calls is implausibly difficult.
It is exasperating in the extreme to watch the current political pantomime. What we need from the people with the power to reassess the situation fairly and act with probity and integrity. This is not the case and it is little wonder that trust in politics is at an all time low. It would be hard to argue against those who say that politicians desperately cling to power at the expense of the electorate, disregarding the very mechanisms meant to keep them in check.
We once again call on those affected to contact their MP and put forward the following points;
- The loan charge has been strongly condemned by taxpayers, advisers, regulatory bodies and MP’s alike
- The disarray that it is causing will result in many years of costly litigation for HMRC
- It will continue to cause serious harm to families
- It will bring about countless bankruptcies which will see HMRC collect next to none of the tax at stake
- There are many alternatives that have been presented to HMRC and MPs as to how to collect tax due more effectively
If there is any takeaway from the hearing it is that by suggesting changes ‘in line’ with the committee’s report, it is still within Norman’s gift to make changes that are so desperately needed. With that in mind, those affected must keep working to strive for change. Collectively, it is possible.
Please contact firstname.lastname@example.org for free MP briefing notes where required. https://publications.parliament.uk/pa/ld201719/ldselect/ldeconaf/242/24202.htm