Government trounces Loan Charge and IR35 amendments, clearing the path for September and April enforcement

Three Finance Bill amendments on Loan Charge 2019 and four on IR35 were last night not moved or were defeated by the government, paving the way for each to bite from September 2020 and April 2021.

Chief among them was NC31, aimed at restricting the loan charge to cases where the taxpayer knew the loan was taxable, and Amendment 20, designed to delay IR35 reform to 2023-24.

But NC31 was not voted on as it was not moved thanks to Labour largely abstaining, despite party leader Sir Keir Starmer receiving a pledge of suicide from a Loan Charge contractor just a few hours before the debate.

And amendment 20 did reach a vote but was eventually defeated, with 254 MPs who voted ‘AYE’ to delaying IR35 reform for two further years, losing out to the 317 who voted ‘No.’

'Innocent until proven guilty'

David Davis MP, who tabled both the ‘contractor-friendly’ amendments, said the charge’s restriction was to reinstate an "innocent until proven guilty" approach by HMRC.

He also argued that the delay to private sector IR35 reform was needed as it was “very unlikely” that covid-19 would be over by April 2021 – the government’s revised start date due to the pandemic.

On both amendments, the former Cabinet minister was backed by Sir Ed Davey, and on NC31 in particular, an unparalleled 52 additional MPs all signed their names backing it before the debate.

None of the other Finance Bill amendments received as much support.

Last night, onlookers were therefore puzzled as to how it was that a vote on NC31 was not held. Others, notably contractors and Loan Charge APPG members, were simply distraught.

'My life is being put under the bus'

“What did you get in return for your abstinence of NC31?” one contractor tweeted the Labour party directly. “I want to know what noble cause my life is being put under the bus for.”

“Where does that leave us?” asked another. “Dead? You are right…belief in our political system is now gone. How is not allowing a vote on NC31 democracy?”

Replying to the SNP’s Alison Thewliss, who backed both amendments and spoke last night of her disappointment at them failing, a third contractor was even more distraught.

“Disappointed?” he tweeted her back. “How do you think we feel. DEVASTATED more like. Our lives are ruined, ruined.”

'Last chance saloon'

The IR35 delay push got short shrift from the Treasury just two weeks ago. And status experts like Matt Fryer and Kate Cottrell urged contractors not to get their hopes up, in pieces exclusively for ContractorUK.

But the new campaign (and resulting clause) to confine the loan charge to taxpayers who deliberately did not declare their loan to be income, had momentum.

It was also seen as the “last chance saloon” to derail the charge from devastating more lives, in the words of one contractor online yesterday.

However in the Commons last night, the financial secretary to the Treasury Jesse Norman looked disengaged, preoccupied with his paperwork, in a rush, and totally unmoved.

'Sledgehammer to crack a nut'

And not just unmoved by the submissions of MPs like Ben Everitt (‘the loan charge and IR35 have been implemented like a sledgehammer to crack a nut’); Iain Duncan Smith (‘HMRC created a tax loophole and then failed to identify it’)  and Pat McFadden (‘we should explore the principle of what taxpayers’ knew as a matter of taxation’).

But the minister was also unmoved by a newly published letter from the daughter of a contractor who ended his own life directly because of the Loan Charge.

The letter was circulated to MPs before the Commons debate and voting session.

“The circumstances surrounding these [deaths of seven people facing the loan charge] have been considered by the coroner , the Independent Office of Police Conduct and HMRC’s own internal yet independent investigations,” Mr Norman said, sounding aware of the letter by ‘Gayle.’

He added: “None of these has suggested that HMRC are to blame for these deaths. In at least four [of these] reports [of taxpayers committing suicide], no conduct issues have been identified either”.

'Two minutes of an MP's time trumps the lives of seven taxpayers'

Challenged by an MP taking issue with the minister admitting that HMRC’s conduct may have been a contributory factor in an implied three cases of its customers killing themselves, Mr Norman said: “I’m afraid I must press on because I’ve got no time.”

“Why is two minutes of MPs' time so much more important than the death of seven taxpayers?” asked Keith Gordon QC, tweeting after the rushed minister’s statement.

“I would dearly like to have known what the intervention was going to say, because I suspect it was going to take issue with what Jesse Norman had just said.”

'Coach and horses'

But the QC is equally interested in another part of the minister’s rejection of both Amendment 20 and NC31, which Mr Norman managed in a brief statement (so brief, that MPs reacting to it, as he sat down, can be heard saying “Is that it?” and “That’s ridiculous”).

“Jesse Norman claims NC31 ‘drives a coach and horses through UK tax principles,’” Mr Gordon said, quoting from the minister’s statement.

“He is wrong, but this is ironic because that is precisely the phrase I used [in September 2019 in an article for Tax Journal] to criticise the Loan Charge.”

In fact, taking aim at Mr Davis (who at one point appears to walk out of the chamber when Mr Norman is referring to him), the minister said: “His New Clause 31 would drive a coach and horses through long-standing principles of taxation because the tax system relies on individuals relying on their own tax and there being little discretion as possible in the system.”

The Treasury financial secretary's critique of Amendment 20, designed to delay IR35 reform, was terser still.

'Serious mistake'

The minister said it would be a “serious mistake” to remove the reform completely (amendments 16, 17 tabled by the SNP), as doing so would cost the exchequer £1.3billion in 2023/24.

Mr Norman also claimed it was not true that PSCs risk becoming ‘zero-rights employees’ because “they already receive a number of benefits funded by the government".

 “They include statutory maternity, paternity, adoption…and shared parental pay,” he said. “And these are provided by PSCs which are then able to claim [back] 100% of those payments”.

There was no other word from Mr Norman on the government’s rationale for forging ahead with the off-payroll rules for enforcement from April 2021.

'We have not achieved the primary aim'

But three amendments seeking to improve the incoming legislation for taxpayers, including a duty on HMT to review the framework, were not moved. The fourth, Amendment 20, was voted against.

“It is very disappointing that after four years of campaigning we have not achieved the primary aim of stopping this legislation,” the Stop The Off-Payroll Tax Campaign conceded last night.

“We, and our 4,000 campaigners, did everything we could – and the Lords report, from their inquiry into the so-called reforms, accurately detailed the damaging effect these changes will have on the UK’s flexible workforce.

“We are delighted that MPs tabled amendments to the Finance Bill, to prevent the damage, but sadly our MPs chose not to back them in sufficient numbers.”

'There's no turning back'

Status advisory Qdos said: “IR35 reform in the private sector has effectively now been signed off and will arrive in April 2021.

“Despite concerns raised by a number of MPs, who rightly exposed the flaws of this legislation and made it clear they do not believe changes are necessary, it seems there's no turning back now.”

Clarke Bell, an insolvency firm reflected: “The news that off-payroll is going ahead in 2021 is very disappointing and contractors and the firms that hire them will be bracing themselves for a challenging time ahead. 

“The pending legislation is already having a huge impact on the lives and livelihoods of contractors and we have a seen a surge in the number of enquiries from contractors seeking to close down their limited companies as a direct result of the IR35 changes.”

The firm’s founder John Bell added: “Covid-19, Brexit and off-payroll combined means that the UK economy is set to suffer immeasurably in the years to come.”

'Triple-whammy'

His prediction evokes the “triple whammy” that Mr Norman was warned of yesterday by the SNP – an Oil and Gas downturn, the coronavirus crisis plus IR35 reform, all hitting at the same time.

“MPs have voted against NC1 of the Finance Bill…by 321 votes to 232,” said the party’s Ms Thewliss, live tweeting from the Commons.

“The proposed clause referred to a review of the impact of the loan charge scheme by an independent panel.”

'Ignoring their constituents'

Also taking to social media, Labour MP Ruth Cadbury regretted that she would not get a chance to address the minister, but said her party was supporting the SNP’s review because Mr Davis “didn’t push” his amendments.

“Many Tory MPs [were tonight] ignoring their constituents and doing what they were told to by government whips,” explained the Lib Dems’ Sir Ed Davey, co-chair of the Loan Charge APPG.

He also said: “[I am] so sorry for all the people out there hit by this. We will re-group next week with the Loan Charge Action Group.”

'Labour-Tory stitch-up'

During the debate, and as it became apparent that NC31 was not going to be voted on, the Lib Dem MP tweeted that he had “been lobbying [the] speaker’s office” for the vote to be held.

“[I’m] trying every trick in the book to get a vote”, Sir Ed wrote, after confessing he suspects a “stich up” between Tory and Labour MPs. “[I am] alarmed at how parliament is preventing this vote.”

But contractors are beyond just alarmed – one even sounds disgusted. “This was some people's last hope [for stopping the Loan Charge] and every MP in that chamber let them down by believing…[expletive deleted] Jesse Norman. You should all hang your heads in shame.”

'It was planned that way'

In the chamber, one MP -- Ms Thewliss, strongly implied something was indeed amiss.

She said, addressing Mr Norman: “It is disappointing to hear that there will be perhaps no vote on NC31 given how many signatures are on this; the lobbying that we have had by all of us on this; the people watching at home will not understand, Mr Speaker, why exactly that might be the case.

“And since we’re trading ‘FDR’ [Franklin Delano Roosevelt] quotes, he said that ‘In politics nothing happens by accident; if it happened you can bet it was planned that way.’ I think we need to note that”.

'A very sad day indeed'

Reflecting moments later, with the all the amendments defeated or not moved, the Loan Charge APPG said in an update: “Very sorry to announce that cross-party NC31 was not called for a vote.

“Extraordinary considering that there were over 50 MPs on it. Thousands of people will feel badly let down by the House of Commons tonight. We hope that the House of Lords will raise the Loan Charge now.”

Admitting to sharing what he called a sense of “despair”, tax barrister Mr Gordon confirmed: “I fear that the loan charge amendments are now dead. I am so sorry.”

He added: “Despite all the efforts…the [UK] executive is riding roughshod over the will of the people and the will of parliament. This is a very sad day indeed.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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