A Surrey resident’s loan charge testimony
“Do you want to reduce your stamp duty liability?” asked my estate agent. When I replied, “If I could”, he put me in touch with Matrix Accounting, who sent me details of four possible schemes, and I chose one which the adviser said was “very low risk”.
Fortunately, I was only in this scheme for two years as a ‘contractor’, as I quit it when I changed jobs. In 2014 I began to get enquiries from HMRC about “disguised remuneration”. After struggling to understand why they were chasing me, I eventually got a clear demand from them for back tax of some £122,000 in respect of this period when I was a contractor in the scheme.
I paid up in 2020, draining nearly all my savings. Outsiders would say, “Well you should never have done it”, but I had a local ‘expert’ accounting firm telling me this was “very low risk”, so why wouldn’t I? I naively trusted the firm … but this firm (as well as others in the chain) was taking huge amounts of fees. To my knowledge, nothing has come their way, whereas people like me were given years of stress and then huge bills.
A 78-year-old Maidstone resident’s testimony
I joined AML Tax (UK) Ltd (part of a group operated by the infamous Douglas Barrowman) in 2013 and left in 2017. This scheme, I understood, was perfectly legal from the information I received at the time, reputably from a tax barrister. Because of my age, I found it difficult to get full-time employment, so I contracted my profession as a draughtsman. HMRC now considers these schemes as tax avoidance (not evasion) and calls them ‘disguised remuneration’ schemes.
I was first contacted by HMRC several years ago, shortly after I left hospital after prostate cancer treatment. After I explained to HMRC on the phone that I had just come out of hospital, they appeared to have left me alone. I mistakenly thought they were showing empathy. Several years later, HMRC sent me a letter demanding I settle my tax affairs.
This statement outlines the significant negative impacts of the recently received high tax bill on me and my wife, particularly considering our current health vulnerabilities and strained financial situation.
Pursued by HMRC
67,000 people, like those two quoted above, are being pursued by HMRC under a piece of legislation – the loan charge – introduced in the Finance Act of 2017 retrospectively to recover tax from people who had signed up to disguised remuneration schemes, either through their employer or sold to them by a promoter of tax avoidance schemes via umbrella companies who charged a fee or earned commission on the sales.
The loan charge looks at the amount of loan outstanding as of 5 April 2019 and treats it as an additional amount of taxable income for the 2018–19 tax year. After Sir Amyas Morse’s review, the charge applies to all outstanding loans that had been advanced since 9 December 2010: before this date, the tax position was not clear.
For many participating in these arrangements for several years, the loan charge aggregates sums received in different tax years, with the consequential impact on marginal tax rates and the loss of personal allowances, amounting to a huge unpayable debt to HMRC.
Many are doing their best to comply with their tax obligations, such as IR35 rules. There are hundreds of impact statements from affected individuals, who all make it clear that they were participating in what they believed to be HMRC-approved arrangements and were trusting in the schemes to handle their tax affairs.
As reported by HMRC, there have been ten suicides, 13 attempted suicides and 24 serious injuries related to the loan charge. Here is a sample of impact statements:
1. Contract Police Investigator
2. Contract Hotelier
3. Agency Nurse
4. Social Worker
5. Armed Forces Veteran
As in the Post Office scandal, victims have formed an action group, the Loan Charge Action Group (LCAG). On 24 January, at Westminster, MPs had a chance to question Treasury officials.
MPs question Treasury officials
Drew Hendry MP: “Some people seem to have received extremely poor advice, which may have led them into schemes such as disguised remuneration, which were then caught up by the Loan Charge. How prevalent is this first of all? Have you ever considered lowering the tax payable by people caught out in these situations?”
Beth Russell answered from the Treasury: “I believe it’s something like 50,000 people who are subject to the Loan Charge subsequent to the recommendations that Lord Amyas Morse made in his independent review.”
LCAG points out that the only source of this figure is HMRC: one would expect them to know precisely how many people they are disputing the tax returns for. The most recent figures from HMRC have risen to 61,000 and then 67,000.
Russell: “As a proportion of the entire taxpayer population, 99.8% of people aren’t using these schemes.”
This overused statistic implies that the number of victims is low and so does not matter.
Similarity with the Post Office scandal
The ITV drama series, Mr Bates vs the Post Office, revealed that the Post Office managers tried to deflect increasing questions from MPs by getting an independent review set up, which they ultimately closed down when the main investigator got too near to uncovering some awkward evidence.
The Treasury tried a similar tactic. The loan charge victims fought to get the government to commit to a review. In September 2019, Morse was commissioned to lead the Independent Loan Charge Review. However, it turned out to be biased: Morse’s team was staffed by HMRC and Treasury personnel.
Russell, the second permanent secretary to the Treasury, may not be well known; however, from freedom of information requests (FOIs), we know how she shaped the functions of this review. She wrote on page 26 of this FOI, “No one likes where we are, but we do need to make a fist of restricting the scope of any review.” And separately, “It would explicitly not look at whether there should be a Loan Charge. This will need to be made clear from the start to avoid raising expectations that the Loan Charge will be reversed,” and “Something that can reasonably described as an independent review, but that minimises the spending/legislative/other risks that a review creates.” Thus, the fact that in her recent evidence she glibly states that the review is independent has not escaped the notice of the LCAG.
Who should pay the loan charge?
Russell: “People didn’t pay the tax that they should have paid.”
A blatant lie, says LCAG. The Rangers case at the supreme court concluded that tax was payable by the employers (promoters of the umbrella scheme).
Hendry: “We know that there is very little being done against the promoters if anything at all. Issues around poor quality tax advice, should tax advice be regulated?”
LCAG points out that many people who entered into these umbrella schemes followed the advice of ICAEW accountants and even QCs.
Russell: “I don’t think it’s quite true to say that nothing is being done on promoters and HMRC have issued lots of stop notices, since they came into force to close down schemes. They have prosecuted some promoters including one directly related to disguised remuneration. We’ve given HMRC in the most recent finance bills extra powers to deal with promoters. There is obviously a lot more to do but they are doing something there. On the regulation point, there is not a specific plan at this point.”
LCAG claim that there have been no prosecutions of scheme promoters.
Is HMRC treating the loan charge victims fairly?
Hendry: “Are you confident that HMRC is treating people fairly in Loan Charge cases or where people have requested a settlement?”
Russell: “I’m confident Jim Harra HMRC is totally focussed on making sure HMRC is doing what they can in these circumstances, which I totally recognise is really difficult for people. There is a lot of flexibility in the framework in which HMRC operates to give people time to pay. I know a lot of work has been going on. One of the issues that people have raised is about the letters that people have received. A lot of work going on to make sure that those are discussed in advance and cleared with people like the low-income tax reform group.”
We (LCAG) certainly do not think the actions of HMRC have been fair. The Loan Charge and Taxpayers Fairness All-Party Parliamentary Group has produced reports on exactly this subject (https://www.loanchargeappg.co.uk/publications/).
Hendry: “Any plans to tackle bad actors setting up schemes?”
Russell: “Primarily a question for HMRC.”
The last word
Let’s leave the last word to James Bowler, permanent secretary of the Treasury, on how he describes a policy that professed to crack down on tax avoidance but which has seen no meaningful action against promoters of these schemes:
“If you look back over the last decade-plus at the Government in various guises there is initiative after initiative to crack down on tax avoidance and, actually, I think we have been really rather successful. It is the case that there is a continuation of promoters and we do want to do significantly more.”
Editor’s note: a useful summary of the legislation and the actions of HMRC was supplied to MPs by the House of Commons Library. HMRC estimated the total amount of tax avoided at £3.2bn,about 50,000 people were involved, with average amount £20,000.
