Contractors' Questions: Will HMRC just give up on the loan charge?

Contractor’s Question: What is the outlook for users of disguised remuneration schemes that landed in the HMRC loan charge? Unfortunately I am one of those contractors who was sold an amazing retention rate when I started freelancing and then got a horrible surprise from the taxman!

Today, more than a year since I first heard from the department, I am still exchanging information with HMRC. But I don’t know how long this will go on for, or how long it might take to reach settlement.

It has not been easy to have this ongoing for a few personal reasons I won’t go into. Anyway, does my situation as a loan charge contractor look similar to others caught by this HMRC policy?

Apart from those who have ended up settling with HMRC, have any run away from UK? Have they left it all in the hands of lawyers to sort out, and is that an advisable way out? Oh, and has anyone found a way out of the loan charge using ‘legal’ schemes, one of which apparently keeps the whole HMRC demand on a continuous delay? Lastly, I wonder if HMRC will just eventually forget about this mess. Surely with so many MPs against the loan charge, it won’t go on much longer.

Expert’s Answer: HMRC has been pursuing users of disguised remuneration schemes for the best part of 15 years, with very few enquiries concluded. 

Inconclusiveness can be deceiving

However, that should not be seen as acknowledgement that HMRC do not consider that tax is due, or that they have forgotten about them. 

Most enquiries into mass marketed schemes are undertaken on a sample basis. What that means is that although HMRC have open enquiries into most scheme users, they only seek information and documents on a sample before extrapolating those findings across the population.

Those that are part of the sample may well have received HMRC’s conclusions in the form of a ‘closure’ notice, and may even be listed for tribunal But the remainder will likely have received very little from HMRC, leading them to believe that the matter in concluded or that HMRC have no basis to tax them. There is estimated to be over 60,000 open enquiries.

Case law, collection, and the change of address catch

In reality, there is little doubt that DR schemes do not work when considered in light of the Supreme Court ruling in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45. There is however doubt as to where the tax liability sits -- or whether HMRC can collect it. The Court of Appeal has recently considered the availability of a PAYE tax credit in the case of Hoey & Ors v Revenue & Customs [2022] EWCA Civ 656, and that case is likely to proceed on further appeal to the Supreme Court.

Once a debt is confirmed, either through assessment or settlement, then HMRC will task their ‘debt management’ unit with collection. In instances where the taxpayer cannot be located, this collection attempt may include the use of tracing agents to locate them. Should they be found abroad (as you ask), then HMRC would seek to use the ‘mutual assistance’ provisions that are found in the vast majority of double-taxation agreements which exist to ensure mutual co-operation between contracting states. 

Such provisions allow one contracting state, upon request of another contracting state, to use their local powers to pursue the debt on the UK’s behalf.

Be aware, it is always the taxpayer’s responsibility to advise HMRC of any change of address, and HMRC only need serve papers on the last known address to be valid. This means that a taxpayer may still be made bankrupt in the UK in their absence.

Never use a scheme to resolve a scheme

As to your other queries, using a scheme to resolve a scheme is never a sensible decision. And we have recently seen HMRC claim that such arrangements that were marketed to avoid the loan charge create a secondary tax liability. 

We have also seen accusations of fraud levelled, and reports of arrests of those that allegedly promoted these response schemes have been widely circulated. The belief that HMRC can be kept on continuous delay is a false one, and any appeal, while having the veneer of stopping HMRC in their tracks, will only ever hold proceedings up until HMRC asks you to present your arguments to the courts.  In the meantime, interest continues to accrue on any eventual debt.

Admirable, but the answer is outstanding

Finally, while the Loan Charge and Taxpayer Fairness APPG has an admirable number of MPs as members, there has been very little political traction -- mainly because The Treasury and HMRC have decided to categorise DR scheme users as aggressive tax avoiders. To allow them to pay less tax than they would have if they had not used a scheme is against government policy, so while the APPG continues to do admirable work, it is fairly clear that the courts are the only place this will be resolved.

The expert was Tom Wallace, head of tax investigations at HMRC dispute advisory WTT Consulting.