HMRC should practice what it preaches by not using loan charge contractors – Lords

HMRC “should practice what it preaches” by no longer engaging contractors caught by Disguised Remuneration -- activity that its own rules for all taxpayers are meant to outlaw.

Issuing this reprimand to HMRC in 11 “conclusions” in their loan charge follow-up inquiry, peers on the Finance Bill Sub-Committee said it must also not use agencies involved in DR.

Although on top of 16 “recommendations” to HMRC, as part of this one conclusion alone the Revenue must “take further steps” to avoid either party if they use DR or “other” schemes.

'Fifteen occassions, 15 people'

In their December probe, the committee discovered from HMRC’s Mary Aiston some “15 occasions” where “15 people” were on DR schemes “at the same” as contracting for HMRC.

But not for the first time, the answer had to be forced from the Revenue.

Back in November 2018, the committee’s Lord Forsyth asked the same question, only to receive a non-answer.

Keith Gordon QC tried more recently for a more relevant reply to the query of how many DR contractors HMRC has used than the one provided to the Tory peer by HMRC’s Ruth Stainer.

'HMRC answered a question that was not asked'

But he too received an answer from HMRC to a ‘question that was not asked’ -- the barrister has said, getting told by the tax authority “We don’t pay people in loans”.

This second bid to dodge the issue is flagged by the peers.

In fact, Lord Bridges of Headley has now written a long letter to Treasury minister Jesse Norman, describing the episode and the eventual emergence of the HMRC official’s answer.

'Well worth a read'

Containing both the committee’s 11 conclusions and its 16 recommendations to HMRC, the letter is being described by Mr Gordon as, “well worth a read.”

The 15-page letter dated Jan. 22nd 2021 also indicates why peers have had to tell HMRC to no longer use DR agencies as, until now, a telling-off may have been its only response.

In particular, Lord Bridges tells Mr Norman in the letter that Ms Aiston submitted: “We are clear with the agencies that we work with that they need to meet the certain standard... if we found that the agency was not, then that is something we would take very seriously.”

Hence the committee’s conclusion 9 to the minister: “HMRC should practice what it preaches and take further steps to avoid using employment agencies and contractors that use disguised remuneration or other tax avoidance schemes.”

And similarly its recommendation 15 to Mr Norman: “HMRC must continually review its suppliers to ensure that none are themselves using aggressive tax avoidance vehicles.”

'Peers highlighting all that is wrong with the Morse Review'

But it is the peers’ many other conclusions and recommendations relating directly or indirectly to the Morse Review which is telling to Tom Wallace of tax dispute advisory WTT Consulting.

“This letter to Jesse Norman highlights all that is wrong with the way the Morse Review has been undertaken and implemented,” posted Mr Wallace, the advisory’s head of tax investigations, alluding to the three conclusions and five recommendations that explicitly name the review.

“Unfortunately, like many of the very sensible recommendations that have come from this committee, I fear it will be ignored by the government. However let’s hope they at least have the decency to respond to such well-considered, evidenced-led recommendations.”

Most problematically for the Morse review’s supporters, the peers found that “too many cases” of loan charge contractors “raise the question of whether HMRC is following” the recommendations of Sir Amyas Morse, published in December 2019.

'Taxman isn't acting in the spirit of Morse'

The Lords also found that the department has faced implementation “challenges,” but then not helped itself by making the processes for contractors to claim the concessions (which Morse recommended) “too complex”.

As to those Morse recommendation which were rejected, the peers sound regretful, recommending that HMRC ought to amend the definition of ‘reasonable disclosure’ back to what Sir Amyas stipulated. And their recommendation is to do so with retrospective effect.

“HMRC haven’t acted in the spirit of the Morse Review,” says Steve Packham, co-founder of the Loan Charge Action Group (LCAG). “Nor their own code of conduct. How ironic."

Packham was referring to both HMRC setting the bar for ‘reasonable disclosure’ much higher than the Morse Review wanted, and to another of the Lords’ findings now put to Mr Norman:

“HMRC must do more to ensure its actions cover both the spirit and the letter of its Charter,” Lord Bridges writes in his letter to the Treasury minister.

“[It] should review how it conducts enquiries which can only be resolved by legislation or litigation. We need reassurance that lessons have been learned from problems with the management of the loan charge.”

'Concerns over independence'

Elsewhere in the 15-page document, a letter written by LCAG itself is mentioned and credited as bringing about an innocuous-sounding, but potentially explosive conclusion 11:

“We would welcome clarification of the appointment process for advisers to the Morse Review, following concerns we heard about its independence,” the conclusion states.

Its origins are again from Ms Aiston’s evidence – albeit on a separate occasion, where the HMRC official claimed that potential advisers to the Morse Review were not ruled out if they had previously given evidence to a Select Committee.

Secondly, and also on the issue of who his review advisers would be, she claimed that Sir Amyas specified he only wanted “people who had not had a public position in relation to the loan charge.”

'HMRC should urgently clarify Aiston's evidence'

But on her first point of no edict apparently being in place against using ex-select committee witnesses, LCAG has obtained (and shared) a Treasury email, in which officials talk of weeding out a potential adviser solely on the grounds that the person had select committee experience.

And on Ms Aiston’s second point of Sir Amyas’ apparent personnel wishes, the two people subsequently appointed as advisers both had “publicly made statements…expressing strong criticism of the schemes subject to the loan charge,” LCAG says.

“It's not attractive that the integrity of a senior official [Mary Aiston] is subject to question,” Mr Gordon, aware of the question marks over her evidence, tweeted on Friday.

The QC added: “HMRC should urgently clarify the position. They should either admit that their evidence was incorrect -- one hopes inadvertently, or provide further evidence that contradicts the evidence before the Lords’ committee and proves that the official was right after all.”