Why the Treasury Loan Charge Review is shameful
It will disillusion many, but the review into the loan charge that Mel Stride was forced to accept -- when he stated just minutes later that the outcome would be that no alterations would be necessary, has duly delivered that prediction, writes Graham Webber, director of HMRC dispute specialists WTT Consulting.
We are all, by now, used to the same tired clichés that pass for justification of the retrospective action against disguised remuneration being taken, and the blind eye officialdom has turned to some of the real questions and effects that this vindictive legislation has had. And that it will have, and which will destroy for a valued and important part of the UK economy -- the flexible workforce, any residual trust in HMRC.
What’s now been published by HMT
Yet it’s still worth examining some of the more outrageous claims made in the now-published Treasury review ‘Report on Time Limits and the Disguised Remuneration Loan Charge.’ This long document (about 50 pages), has been published ahead of schedule (it was due by March 31st) next to a new Disguised Remuneration ‘factsheet.’ The previous Loan Charge factsheet was widely discredited.
What’s fundamentally false from HMT
So the report’s Page 3 says “individual schemes have been litigated”.
False. The only contractor loan scheme to have seen a tribunal was Boyle.
This answer continues what we regard as deceit being practised by HM Treasury on parliament. In viewing the legislation here, HMRC conflates the use of EBT/EFRBS arrangements used by owner managed businesses as a cash-extraction method. Yes, these schemes have been litigated and struck down. The motive behind them is very different, however.
Unfortunately, this grouping of different schemes for statistical and reporting purposes is deliberate, and so it is repeated throughout the review. This, we believe, is intended to cement in any doubting MPs’ minds the need for legislation.
Page 3: “Criticism of the loan charge falls into two main areas”.
Those areas are claimed to be “proportionality” and impact on individuals.
False. They are important areas, but the key area attracting adverse comment is retrospection.
Page 3: “Majority of DR schemes were never disclosed”.
False. Almost all pre-2010 schemes were disclosed.
Page 3: “HMRC routinely opened enquiries.”
False. We calculate a default (no enquiry) rate of about 30%.
Page 4: “The Government is clear that the legislation is not retrospective.”
False. The Government, we say, is deliberately using semantics to hide the truth.
I could go on, but enough detail for now. Suffice to say dear authors of the Treasury report, repeating the same falsehoods does not render them any more honest or truthful.
Retrospection, regret and rife misrepresentation
The main defence against the accusation that the charge is retrospective is that taxpayers have the opportunity to repay loans or settle with HMRC. No contractor in their right mind will repay a loan to the very people who created the problem. And settlement with HMRC is a misnomer. It’s not settlement. It’s ‘accept that you are personally liable for every penny, or walk away.’ Use of the word ‘settlement’ is inaccurate.
Regretfully, this isn’t an isolated example. Indeed, the report is full of trite and banal comments on how this legislation is appropriate. Well it is appropriate -- but only if it were applied from a given date after the legislation is announced. No contractor we have ever met argues that they would have kept using a scheme had they known about the legislation; they would have simply stopped. Using hindsight to justify the use of retrospective law is never appropriate.
Then, there is a section in the report dealing with the history of disguised remuneration avoidance. It would be worthy of an award if there were awards for propaganda. It is possible (but not productive) to dismantle the claims made, line-by-line. The dissembling and misrepresentation in this section is rife. Let’s highlight just a couple of lines.
At clause 3.22, HMRC claim to pursue employers. Well, we deal with several thousand contractors and until the very last two weeks, we have seen less than a dozen examples of employers being chased. Even where we do, it is just HMRC lip service, as the Revenue makes only weak and futile attempts to collect before transferring liability to individuals.
At 3.25, the claim is that HMRC has advertised its stance long and often. How the Revenue likes to forget! They should remember the House of Lords report from late 2018 where peers very clearly said that HMRC’s communications were poor, inconsistent and not visible to taxpayers. Given that Mr Stride chose, three times, not to accept an invitation to that Lords’ committee to explain himself, it’s clear to us that the fault lies at his level and percolates down.
One rule for contractors, comparative let-offs for everyone else
We then come to one of the core inconsistencies in the review that will stick in the throat of many affected contractors. There are repeated claims of action being taken against employers, promoters, advisers and all those connected with the design, sale and management of schemes. This is to be welcomed because the one true statement in the report is that nobody wants to repeat the mistakes of the past.
But all of those claims focus on legislation that had -- or has prospective effect. It’s all things that “will happen” and how these things will curtail designers and others from making and selling new schemes. Laying aside the regretful but explicit non-deterrent effect that legislation has -- we still see perhaps two new schemes a month -- we applaud the effort to actually make a difference here.
However, if these measures are prospective, then why is it necessary, proportionate or fair to visit retrospective measures on those duped into schemes in the past, often on promises that because HMRC has taken no action, “it must work”? Why are we seeing one rule for the designers and a different, more punitive rule for users? Why is there no mention in the review of the benefit reaped by end-users and agencies and why should they not be called upon to contribute to the alleged (but unproven) £3.2billion yield?
HMT’s new low: shrugging off suicide
Perhaps hoping readers will have by now switched off due to the sheer disappointment of what the review delivers versus what many hoped it wold deliver, the review saves its most obvious sign of contempt for contractors to last -- the end of section three. Our firm has been active in sending HMRC medical reports and verified stories from clients as to the extent their health has been actively damaged by HMRC’s past, present and no doubt future actions in relation to Loan Charge 2019. Reports of some taking the ultimate exit route -- suicide, we can say are real. And despite some suggestions to the contrary from HMRC’s CEO John Thompson, these reports have most definitely been handed to HMRC.
Upsettingly, these instances are callously dismissed and treated with disdain by the report. Claims that HMRC’s teams are trained to identify and deal with vulnerable customers is, frankly in our view, dishonest. We have not seen one instance of such an intervention, even when supported by evidence. Claims that HMRC “has taken steps to ensure...support...while mitigating the impact of the loan charge” are, similarly to our knowledge, false. They belong to a make-believe world, inhabited by HMRC and the loan charge’s few supporters in parliament.
When the fury and disgust this review will generate subsides (if ever), individual workers in our economy will still face the loan charge and its life-changing consequences. It is unconscionable, unprecedented and unfair to visit the entire tax bill on one party of several who have benefited. Worst of all, it is beyond unfair that an agency which ought to be trusted and a bastion of integrity has, by choice or by coercion, decided to attack the weakest link in the chain.
They should be ashamed, but they probably won’t be if the tone of this report is anything to go by. And certainly Mr Stride won’t feel ashamed. Asked by Ruth Cadbury MP about what records HMRC holds on suicides of people who were affected by the loan charge, the Treasury minister dared to say last week: “Suicide is a complex issue and there is rarely a single cause.” For a minister who went on to curtail his answer ‘out of respect’ to affected families, it is hard to imagine him mustering anything more disrespectful.