Spring Budget 2024: My letter to the chancellor on the inequitable loan charge

Dear Chancellor,

This is an urgent appeal for you to cancel wrong applications of legislation before your Spring Budget on Wednesday March 6th 2024.

Before I detail the appeal, please note that I write this on the day when the UK has been officially declared in recession.

While the UK enduring two consecutive quarters of negative growth likely means your in-tray is fuller than usual, please note that my appeal is inextricably linked to the economic malaise which the UK finds itself in, as the appeal concerns the inequitable tax treatment of some of our most hard-working, enterprising individuals – contractors.

Retrospective legislation defies common sense

The Loan Charge, in its current form, is widely regarded as retrospective legislation by its victims, the general public, and the very informed such as the House of Lords Economic Affairs Committee.

Indeed, the idea that a new tax law can apply retrospectively for decades defies common sense, fairness, and the unwritten British Constitution. It is unconstitutional.

Those temporary workers attacked by HMRC’s Loan Charge were acting in good faith, relying not only on advice from their trusted accountants, but also on legal opinions from barristers who affirmed the legality of their arrangements.

Labour looks alert to the injustice

Chancellor, it is important to emphasise that these schemes were legal at the time they were implemented. The backdated application of tax laws, especially over such an extended period and so long after the event, is an affront to justice and undermines the constitutional fundamental principle of legal certainty. That appears to be why the Labour party -- ahead of your Conservatives in the polls by some distance -- has pledged to properly review the Loan Charge.

Of specific concern chancellor, the indiscriminate application of Regulation 684A, which is being used to impose Pay As You Earn (PAYE) obligations retrospectively on individuals personally, exacerbates the plight of those impacted by the loan charge.

This regulation was originally intended to allow certain exemptions prospectively such as, remarkably; the payment of priests from collection plate donations! It was never meant to impose burdensome tax liabilities on individuals for past actions.

The misapplication of Regulation 684A (continued)

Applying Regulation 684A to loan charge victims is unjust and inflicts further hardship on individuals already grappling with the repercussions of retrospective taxation. Moreover, parliament clearly intended 684A to be prospective, meaning for it to be applied in the present. There was never an expectation it would be abused by being applied to the past, because that is unconstitutional so as such, it did not need to be specified against.

The concept of HMRC settlements, ostensibly offering a path to resolution and relief, has been marred by bureaucratic hurdles and arbitrary actions. Despite initial efforts by the tax authority to facilitate reasonable settlements, these endeavours have been blocked by administrative changes and dismissal of any office being reasonable, further compounding the distress faced by affected individuals and their families.

Impacts of HMRC’s loan charge

There have already been ten suicides of individuals facing the loan charge.

The prospect of more taxpayers taking their own lives over a tax policy acts as a constant threat to charitable organisations which are striving to manage the effects of the loan charge on society.

HMRC platitudes are widely acknowledged as no more than that -- lip service, as evidenced by their refusal to negotiate fair settlements. Oh, and please bear in mind, these are settlements for money which the taxpayer never expected to be demanded in the first place.

Questions for HMRC

Adding insult to injury, the imposition of IHT taxes meant for the deceased but levied on the living, particularly in the context of the loan charge and Regulation 684A, is deeply troubling. Reports of fabricated charges and procedural irregularities (only uncovered through Freedom of Information Act requests), underscore the urgent need for transparency and accountability within HMRC.

It has also come to light that HMRC's internal manuals contain undisclosed provisions that could potentially provide a defence for victims of the Loan Charge or 684A. The revelation of such hidden clauses, reminiscent of the Post Office Horizon scandal, raises serious concerns about the fairness and integrity of HMRC's enforcement actions.

Relentless, devastating, irreparably damaged by promoters

The relentless pursuit of tens of thousands of individuals affected by the loan charge, while the true beneficiaries of millions from these schemes remain elusive -- promoters, is a grave injustice. These individuals find themselves targeted and financially devastated, while the principal architects of these arrangements evade accountability. Suicide is the worst-case scenario, of course, but countless marriages and families, and children, are being irreparably damaged by promoters’ offerings. And thanks to the nature of the charge, damaged retrospectively.

Please act at Spring Budget 2024 to restore our tax system’s integrity

In conclusion, the application of retrospective tax legislation in the shape of the loan charge, coupled with administrative inequities and procedural irregularities, has resulted in widespread injustice and hardship.

I implore you to use your authority to rectify these wrongs on March 6th and restore faith in the integrity of our tax system. As you finalise the Spring Budgetary proposals, I urge you to prioritise fairness, justice, and compassion for those impacted by the loan charge, 684a and related regulations. The time to act is now please.

Yours sincerely,

Anthony Mellor FCA, founder of Mellor & Co.

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Written by Anthony Mellor

With over 46 years of professional experience, Anthony Mellor is an expert in accountancy and business consultancy, with a special focus on Excel. His practice Mellor & Co serves contractors, freelancers, small companies, sole traders, and partnerships, primarily in the UK. Anthony qualified as a chartered accountant in 1984 and today specialises in business risks, compliance and financial planning for firms wanting to thrive.

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