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Sat, 31 October 2020

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If the Government does not intervene on the Loan Charge, MPs will be forced to find a legislative route

If the Government does not intervene on the Loan Charge, MPs will be forced to find a legislative route
3 min read

The loan charge is a legislative, operational and communications failure on a grand scale by HMRC, writes David Davis MP


For months many thousands of people across the country will have been eagerly awaiting the publication of the independent review of the Loan Charge. But they will be bitterly disappointed following its release in December. For many, it goes nowhere near far enough.

Sir Amyas Morse’s report is detailed and thoughtful, and I commend him and his team for their heroic efforts to find a compromise on the Loan Charge.

Importantly, the review recognises the Loan Charge is retrospective. Not only that, but it notes in paragraph 3.8 that there is no legal precedent for the retrospective element of the Charge.

When people entered into these tax arrangements, they had no idea that 20 years later HMRC would come after them. They were advised by promotors of the Loan Charge that their arrangements were perfectly lawful and, in many cases, were apparently told the schemes were appropriate by HMRC itself.

The review recommends all payments made before December 2010 should be exempt from the charge. This would rescue around 10,000 people from the distress and hardship of the Loan Charge. That is good news for them and their families who can finally move on from this trauma.

But it will still be retrospective. For matters of natural justice and the Rule of Law, a compromise is simply not enough.

Around 40,000 people will still be targeted by this unjust and retrospective tax. They will continue to be hounded by HMRC and will still have to cope with mental and financial hardship. These people are not city bankers and hedge fund managers. They are locum nurses, contractors, teachers and small business owners. There is simply no justification for keeping them within the scope of the Loan Charge.

The 2010 cut-off point recommended by Sir Amyas is entirely arbitrary. It is based on the Government publishing draft legislation on disguised remuneration and initiating a public consultation in December 2010. But HMRC does not take its direction from draft legislation. It takes its direction from the settled law.

HMRC was claiming the law was clear over the past twenty years. But it is not HMRC’s opinion that matters here. It is the Court’s opinion that matters. Paragraph 2.22 of the review points out that HMRC lost the arguments in the courts in the critical Rangers’ case right up until 2015, and the matter was only finally resolved by the Supreme Court in 2017.

So, if the law was not clear to HMRC and the courts until 2017, how could it possibly have been clear to the average person on the street back in 2010?

This is a legislative, operational and communications failure on a grand scale by HMRC. Unfortunately, under British law, when HMRC make a mistake it is the taxpayer that always pays. What we are seeing here is a combination of technical incompetence and institutional avarice.

The only sensible, just and fair cut-off point is 2017. That is when the Courts settled the matter and it is when further legislation was passed making the law clear. Any action taken against taxpayers before that would be fundamentally at odds with the Rule of Law.

The Budget and Finance Act will soon be coming before Parliament. At that point MPs can take a proper judgement on the Loan Charge.

As I have made clear in the House of Commons and in a letter to the Chancellor in December, if the Government does not take positive action on this, MPs will be forced to find a legislative route to ensure HMRC and the Treasury cannot engage in retrospective taxation ever again.

David Davis is Conservative MP for Haltemprice and Howden

Read the most recent article written by David Davis MP - Our tax burden is too high. We need a bold Budget, not 'Spreadsheet Sunak'

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