MPs brand HMRC 'out of control' over loan charge conduct

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A cross-party group of MPs has urged the Minister responsible for HMRC to suspend its controversial loan charge with immediate effect following an interrupted House of Commons debate. This follows the publication of an excoriating report into the Revenue’s conduct in enforcing this legislation.

On Thursday, MPs from both sides of the house lined up to support a motion tabled by Conservative backbencher Ross Thomson which demanded a six-month delay to the policy and an independent inquiry into the charge.

The debate was curtailed due to a burst water pipe in the House of Commons causing a leak in the public gallery, with no resolution reached.  The session is due to resume on 11 April, but as the tax is due to come into effect from today (5 April) members of the All-Party Parliamentary Loan Charge Group (Loan Charge APPG) petitioned financial secretary to the Treasury Mel Stride to seek an urgent suspension of the law.

Senior MPs from both sides of the House stood up to criticise the loan charge, with former Brexit Secretary David Davis describing it as a tax policy that is “destroying families, homes, mental health and even lives."

Former Treasury minister Justine Greening stated that HMRC had “simply got it wrong” in its approach to the loan charge, describing the tax authority’s approach as “punitive rather than proportionate.”

‘An organisation out of control’

The House of Commons debate followed the publication of a report from the Loan Charge APPG examining the circumstances surrounding the loan charge and HMRC’s conduct with regards to it.

The report received more than 900 submissions from those affected, and the main conclusions from it are as follows:

  • There is a clear risk to the mental welfare of people facing the loan charge, including known suicide risks and a number of suicides linked to the charge.
  • There will be many bankruptcies as a result of the loan charge.
  • The original impact assessment published by the Treasury was flawed and inadequate, to the point of being negligent.
  • The ‘disguised remuneration’ arrangements were not entered as “aggressive tax avoidance” and were often a condition of employment, especially in the public sector.
  • The Loan Charge is retrospective, overrides taxpayer protections and undermines the rule of law.
  • The real reason for the introduction of the loan charge was to bypass the normal legal processes and to allow HMRC to collect tax where they were ‘out of time’ under existing legislation.
  • There has been a cynical campaign of misinformation waged by HMRC and the Treasury.

The inquiry recommended a number of action points including an immediate six-month suspension of the charge and an independent review led by an experienced tax judge to assess its impact and legal justification.

The report also called for a wider investigation into the conduct of HMRC with regard to the Loan Charge and an independent assessment of HMRC’s use of behavioural psychology and behavioural insights, “the knowing use of which should be suspended in the light of the suicide risk and the known suicides of individuals facing the loan charge”.

A section marked ‘HMRC conduct overall’ stated: “HMRC’s conduct with regard to the loan charge indicates that it is an organisation out of control, urgently needing better and proper scrutiny and genuine accountability.”

In an open letter to HMRC’s chief executive Jonathan Thompson accompanying the report, MPs expressed “serious concerns” that both HMRC and Treasury Ministers are “consistently issuing misleading information in documents, letters and press statements regarding the loan charge”.

Reacting to the debate and report, a Treasury spokesperson told AccountingWEB: "As announced at Budget 2016 and in accordance with the legislation, the loan charge takes effect from April 5. Anyone who contacts HMRC by midnight April 5 with the genuine intention to settle their tax affairs and provides the required information will almost certainly end up paying less.

"We remain committed to ensuring that people impacted by the loan charge receive the support they need, and that individual cases are treated sympathetically in the light of individual circumstances."

Is it too late?

The loan charge legislation was passed in Finance (no.2) Act 2017 and is due to come into force today (5 April 2019). However, with pressure mounting on the government over its impact and the behaviour of its departments in enforcing the legislation, calls for a delay have reached a crescendo.

However, speaking on AccountingWEB’s No Accounting for Taste podcast, tax expert Rebecca Cave stated that it may be too late for loan charge campaigners.

“This loan charge was put into law in the 2017 Finance Act that was passed directly after the election of that year. There was very little scrutiny. There were two finance bills that year. One before the election, which was shortened because we had a snap election … and the rest of the Finance Bill was then brought back. Because we had a whole new group of MPs, and Mel Stride was suddenly new into his post in charge of HMRC, this legislation never really got properly reviewed by MPs and it just got passed in the Finance Act so it’s there, it’s law, and it will take law to unwind it.”

Due to Brexit currently occupying a large proportion of parliament’s debating time, Cave said she doubted there would be “any time at all” to pass anything to stop the loan charge.

What is the loan charge and why has it hit the headlines now?

The loan charge was created to collect tax in respect of the numerous loan-instead-of-salary schemes (known as disguised remuneration) that sprung up in the wake of the government’s clampdown on contractors in the early 2000s.

Workers were paid via loans to avoid tax and NI contributions, and although they paid tax on the benefit of having an interest-free loan, in many cases they did not expect to ever repay the loans. HMRC claims that such arrangements could never avoid tax, although specific rules against disguised remuneration did not come into effect until December 2010.

The Revenue’s solution to collect tax on the huge number of disguised remuneration loans in existence was the loan charge, which adds together all outstanding loans, over the course of up to 20 years, and taxes them as income in one year. Those hit by the loan charge originally had to pay by the end of January 2020, but HMRC claims it has a range of solutions for those affected to settle and spread the cost with them.

Around 50,000 individuals with a range of backgrounds will be affected by the loan charge, and accounting institutes and bodies, along with MPs and peers, have condemned the government for failing to properly assess its impact.

It has long been feared that the loan charge could lead to mass bankruptcies, and there have been reports of suicides directly linked to the charge.

A separate House of Lords inquiry conducted last year labelled the charge “unfair” and “pernicious”, and found that those affected included low-paid NHS and social workers who claim to have unaware they were even part of such schemes, having been forced to operate through umbrella companies by their employment agencies.

The charge has also come under fire for its retrospective nature, although the Treasury has taken the view that it is not technically retrospective.

HMRC was contacted for comment on this story. This story was amended 5 April to add a quote from the Treasury.

About Tom Herbert

Tom is editor at AccountingWEB, responsible for all editorial content on the site. If you have a story that might interest us or wish to comment on the site's coverage get in touch via the site's private message function or Twitter DM (@AWebTom)

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12th Apr 2019 13:22

And why did CIoT, ICAEW et al sit idly by re all this I wonder? The best ICAEW could do in protest is in the link below which is pretty much nothing really compared to this really excellent and obviously 100% correct report by MPs:

https://www.accountingweb.co.uk/tax/hmrc-policy/icaew-slam-contractors-l...

No doubt HMRC will soon be trying to cover up the cover up!

The 4.4.19 & 11.4.19 debate is here: https://hansard.parliament.uk/commons/2019-04-04/debates/606C0091-A272-4...

https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CDP-201...

https://hansard.parliament.uk/commons/2019-04-11/debates/65713A00-68FA-4...

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05th Apr 2019 10:17

I can not understand the furore around making somebody pay the correct amount of tax, after they have clearly at the very least used an unscrupulous scheme to avoid paying ANY tax & nic .
Not one of my clients entered into or asked about such a scheme .

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to meadowsaw227
05th Apr 2019 10:22

With respect, that is a shockingly naive statement that is not borne out by the facts laid out in the report.

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By KateR
to G Webber CTA
05th Apr 2019 10:35

Agreed. I have a client who came to me to deal with CL settlement. A couple of years out of college and working as a graphic designer they entered a new contract which they thought was a freelance contract. They were actually paid under a CL scheme. Client did not understand what this was and in fact declared the income as self-employed earnings. Thanks goodness the job only lasted 6 months and the pay was low. After submitting relevant information to HMRC in September still waiting for matter to be concluded. Apparently still have many letters of offer to be sent out.

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to G Webber CTA
05th Apr 2019 14:37

Of course, Webber is someone with a huge vested interest in being as indignant as possible on behalf of his long list of contractors.

I wonder if he would take the same line if he wasn't so heavily involved in the way that he is.

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to AnnAccountant
05th Apr 2019 15:01

You are entitled to a view and yes I have a firm that assists contractors.

I ask you to however consider the report and not my motives.

The report has found that HMRC has conducted a cynical campaign against a group of taxpayers in order to cover up their own failings.

You may not like the fact that the group of taxpayers targeted happen to be my clients, but as they are I'll not apologise for taking every opportunity to defend them.

I would expect a professional adviser to do the same if this sort of blatantly vindictive and potentially unlawful action was taken against their client group.

I understand that you are trying to link a commercial motive with a perhaps false indignation and thereby reduce the effect of whatever I say here but in this instance I have to observe that you do yourself no favours as any reasonably competent professional surely cannot ignore the findings?

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to G Webber CTA
08th Apr 2019 10:17

but its not really a loan charge is it....HMRC re just saying to repay the loan or be charged to tax in some other way....can't be hard repaying a loan you know needs repaying...unless of course there is no intention to repay the loan.

So these loans....they were never intended to be repaid were they - a simple yes or no will suffice...

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By Jdopus
to meadowsaw227
05th Apr 2019 15:34

In the name of understanding let me give you an example of the only client I have caught up in this.

My client was a social worker employed by the local council for many years, she had no problem with this and was happy with her work.

However, after these loan schemes became popular, the local council decided that these were an excellent way to get out of paying Employer's NIC, sick pay and holiday pay (which are high in a job as stressful and mentally harmful as social work) and began pushing all their social workers to become self employed under the umbrella companies offering these schemes.

Our client then worked as a Ltd company contractor under these schemes for a number of years between various different councils.

HMRC then introduced IR35, leading to a cancellation of this type of employment and vast cuts in the salaries of all social workers in the public sector.

Right around the same time, my client received a letter from HMRC demanding that within 30 days of receiving this letter she had to pay them £60,000 of tax - twice what her annual salary now was after the public sector pay freeze, the cuts to local councils and IR35.

An individual with no knowledge of the tax system who was 100% happy being a council employee get pushed into a tax scheme by one government entity, central government then freezes her salary for ten years, passes legislation making her liable for the tax scheme another government entity forced her to be employed through and then on top of it passes new legislation forcing her to accept massive pay cuts to go right back to the situation she was happy in ten years ago!

Then sends her a letter telling her that she needs to pay up twice her annual salary within 30 days.

Can you understand why I might find the above to be a disgusting state of affairs?

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By DanGott
to Jdopus
05th Apr 2019 16:49

Spot on brother! Government and HMRC should never allow these schemes to exit in first place.

Most individuals and many companies have no knowledge of tax but they end up facing consequences!

I ain't no tax experts but I spend most on my day fighting internal departments within my organization and revenue agencies over 50 countries to ensure both employees and company taxes are paid correctly and when due.

Late tax charges are very scary and cause immense anxieties to most of us!

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to Jdopus
05th Apr 2019 16:59

I sympathise with the few that are genuinely vulnerable individuals, however at some point your client (as an example) must have realised that they were working through an umbrella company and not paying any tax, then subsequently were running their own company for a number of years without paying any tax, presumably they had an accountant advising them and preparing their accounts? Even if they failed to get any professional advice from their own accountant, would they not have had the sense to seek out professional advice elsewhere, HMRC, read the papers, or even used Google or spoken to their husband/wife/family, or spoken to the council, or the agency, or any one of their colleagues that would have been in exactly the same position as themselves.
I have plenty of IT contractors, who within the same investment bank sit opposite employees, other IT contractors using PSC's, some of whom entered into loan schemes and some of whom didn't. They work together, talk amongst themselves every day, go for lunch together, go for drinks in the evening, as well as liaising with the HR department of the company, they were all fully aware of the risks and benefits, some chose to take that risk, some didn't. They all knew it was wrong (I would suggest that a social worker is far more likely to realise that it was morally wrong than an IT contractor!), but took that chance, received the financial benefit of doing so and have had numerous years to prepare themselves for the tax bill. The fact that they either invested that money into bricks and mortar, or p*ssed it up the wall, is irrelevant.
Of course HMRC were useless at handling it, that's not a surprise, but it's not a get out of jail free card for those that knowingly used the schemes.
For clarity, I've never used a scheme or offered schemes to clients, but I have obtained new clients who used such schemes, each liability has now been settled via instalments, each client had entered the schemes knowing that ultimately they would have to pay the tax but it gave them the cash-flow benefit they needed at the time.

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to Sheepy306
05th Apr 2019 17:36

@Sheepy, that is what my clients are like.

I have been asked about these schemes endlessly over the years, and my advice to just pay your fair share of taxes seems to have come out all right.

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By Jdopus
to Sheepy306
08th Apr 2019 09:47

They realized they were in a dodgy scheme after appointing us as their accountant quite a few years ago. The thing is though, they were told to enter these schemes by local councils - I imagine you can well understand how someone unfamiliar with the tax scheme might think they had some assurance from that. They were inclined to think, "Well if the government is telling me to join this umbrella organisation it must be legitimate".

That's the biggest source of my problem with the way this has been handled. The government itself was probably the single biggest proponent of staff joining these schemes and now a different branch of government is treating them like criminals for obeying the whims of council finance departments.

The added complexity here is that while my client was within this scheme for 3 years after being pushed into it by her original council employer, social workers have seen first a massive pay freeze for the last ten years and secondly a massive net pay cut when IR35 was introduced. I was genuinely not exaggerating at all when I said that the letter my client received was for her to pay twice her current gross annual salary in the next 30 days - that's how badly social workers have suffered from being hit by all of these different government policies in succession.

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to meadowsaw227
05th Apr 2019 21:45

According to tribunal cases looking at loans, they DID pay the correct amount of tax. Read the entire APPG report, and you will see it is obvious, even at supreme court level, that the loans are not of themselves taxable income.

And to not only bring them into charge now, going back 20 years, but to do so in a single year is simply HMRC taking the [***].

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05th Apr 2019 10:21

The report is "excoriating". It calls for a root and branch review of HMRC and its relationship with its oversight. As will be obvious to all, having your major beneficiary and the party responsible for oversight as the same entity, is hardly a recipe for objectivity and integrity.

Anticipating the usual nonsense we see here and elsewhere about "greedy contractors, avoiding tax" and therefore deserving all they get, just be aware that the report considers the manner in which this crisis arose.

It says that HMRC failed in its primary duty to identify and prevent the sort of schemes now classed as avoidance, despite having all the data they needed.

It says that HMRC failed to make its position clear and failed to take action against the employers and promoters. (In February this year HMRC has permitted a major player, based in the UK, to be struck off with no claim being made against them).

It says that HMRC, faced with exposure of its shabby performance, came up with a retrospective tax charge to cover its blushes.

It says, damningly, that senior HMRC officials allowed all of this to happen and supported it with research and statistics that were inadequate or incomplete.

It says that senior HMRC officers may have breached the Civil Service Code and should be identified an disciplined.

If all of the above is correct - and I can say from the evidence of individual client enquiries, I very much fear it is - the HMRC had the opportunity in around 2004/05 to stop all of this happening - and did not. What started as incompetence worsened perhaps by lack of resources, meant that it later required a "cynical" campaign of misinformation and misleading Parliament.

I'm sure we will see messages here saying fault lies at the feet of contractors. It does. (Not because as the article says they used a scheme to avoid tax but because they put finding and securing a job over and above all other considerations). However all of my clients would have stopped in 2004/05 had HMRC been on their game.

They were not. Worse, having fallen behind in the game, they now attempt to change the rules by misleading the referee.

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to G Webber CTA
05th Apr 2019 11:28

G Webber CTA wrote:

The report is "excoriating". It calls for a root and branch review of HMRC and its relationship with its oversight. As will be obvious to all, having your major beneficiary and the party responsible for oversight as the same entity, is hardly a recipe for objectivity and integrity.

Anticipating the usual nonsense we see here and elsewhere about "greedy contractors, avoiding tax" and therefore deserving all they get, just be aware that the report considers the manner in which this crisis arose.

It says that HMRC failed in its primary duty to identify and prevent the sort of schemes now classed as avoidance, despite having all the data they needed.

It says that HMRC failed to make its position clear and failed to take action against the employers and promoters. (In February this year HMRC has permitted a major player, based in the UK, to be struck off with no claim being made against them).

It says that HMRC, faced with exposure of its shabby performance, came up with a retrospective tax charge to cover its blushes.

It says, damningly, that senior HMRC officials allowed all of this to happen and supported it with research and statistics that were inadequate or incomplete.

It says that senior HMRC officers may have breached the Civil Service Code and should be identified an disciplined.

If all of the above is correct - and I can say from the evidence of individual client enquiries, I very much fear it is - the HMRC had the opportunity in around 2004/05 to stop all of this happening - and did not. What started as incompetence worsened perhaps by lack of resources, meant that it later required a "cynical" campaign of misinformation and misleading Parliament.

I'm sure we will see messages here saying fault lies at the feet of contractors. It does. (Not because as the article says they used a scheme to avoid tax but because they put finding and securing a job over and above all other considerations). However all of my clients would have stopped in 2004/05 had HMRC been on their game.

They were not. Worse, having fallen behind in the game, they now attempt to change the rules by misleading the referee.

That is a good summary.

HMRC's behaviour has been disgusting in this matter overall.

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to G Webber CTA
05th Apr 2019 14:48

ALL would have stopped in 2004/05, would they, Webber? That's a bold claim you make.

How many people are you representing who didn't stop after the DR rules of 2010?

More than zero, I bet.
= Your claim is unlikely to be supported by the facts.

I am Jack's complete lack of surprise

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05th Apr 2019 11:10

I fail to see why anybody should be surprised by this.
The manifest ramp-up of mendacious duplicity of HMRC, wilfully being misleading/misinforming on a whole range of matters has oft-times been laid bare.
The Treasury seems to be taking a lead from HMRC in its behaviour too, these days.
The blinkered idle dolts we elect to scrutinise these things are notable only for their ability to utterly screw everything they are entrusted to.
And our esteemed accountancy bodies, as seen by the outsider, seem more adept at oleagenous handwringing than meaningful lobbying.
The jar of Vaseline on my desk is not only for chapped lips.

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05th Apr 2019 11:14

Look at what the CIoT said recently about the (20 year retrospective) 2019 EBT loan charge at para 5.3 in the link below:

"5.3. The Government are right to challenge and counter abusive tax avoidance schemes, such as those involving disguised remuneration."

https://www.tax.org.uk/sites/default/files/FB%20briefing%202017%20Clause...

Whose side are they on here? Only 5 years ago the CIoT were saying the opposite as follows from the link below re APNs:

"Taxpayers should be entitled to organise their affairs in accordance with the prevailing law in the certain knowledge that it may be changed in the future but that its impact cannot be backdated. Retrospective legislation creates doubt and uncertainty to the detriment of the economy at large. We believe that these proposals can only create uncertainty for taxpayers..."

https://publications.parliament.uk/pa/cm201314/cmselect/cmtreasy/1189/11...

Notably, the CIoT has removed its 2010 policy paper criticizing retrospective tax legislation that used to be in the link below but is now no longer on their website:

https://www.tax.org.uk/Resources/CIOT/Documents/2010/11/Retrospective%20...

Interestingly, unlike the CIoT, the GAAR panel does not find EBT/EFRBS loans to employees abusive per se per section 8 of the link below:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

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to Justin Bryant
05th Apr 2019 11:45

Some interesting points above and I wonder if it speaks to a deeper problem.

Many of my clients relied upon the "expert" advice of people connected to the scheme. Often those people had no professional qualifications and should therefore have been approached with some caution.

However a significant minority had "advice" from ICAEW/ACCA/CIOT members which validated the scheme, often without adequate risk warnings. Some even took the scheme offered to an "independent" accountant, who without disclosing often close links with the promoter, gave the scheme a clean bill of health.

I have in the past been criticised for painting all advisers with the same brush and saying that they should never have opined on these schemes without disclosing connections and risks. That is clearly incorrect because many advisers have not seen these schemes and many have advised clients to stay away.

There are however advisers in the past and indeed advisers who today are saying that schemes to pay contractors or worse - to avoid the loan charge - are perfectly acceptable and relatively risk free. I can produce a portfolio of half a dozen loan charge avoidance plans at least two of which have very strong connections with professionally qualified people.

Any professional code of ethics is only as strong as the weakest member. However, without some policing of such a code, the race to the bottom is unchecked.

Yes, HMRC has erred here. Yes, contractors have erred here. However the institutes and their members are not entirely blameless.

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05th Apr 2019 11:12

The utter incompetency and crookedness of the HMRC is on plain display on this one. Why did they take 20 years to pass legislation? Why was it not tackled within the first few years?

By law the tax office can only go back 6 years normally but in this case they kept the cases open for 20 years by writing to the taxpayers each year. Talk about under handed behavior.

Why was the legislation made retrospective? This is very unusual for tax laws.

Why aren't they going after the companies that offered these schemes? They are as guilty as the contractors who were naive enough to believe that the scheme was genuine tax avoidance.

Why did the professional institutions like ICAEW, ACCA etc. not speak up, not give guidance to its members earlier or even protest against this ridiculous behavior by the HMRC?

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By 0098087
05th Apr 2019 11:58

HMRC complicit with two shocking chancellors of the exchequer in Osborne and hammond. Never seen some incompetence in that office since Lawson.

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05th Apr 2019 12:20

I would be fascinated to know, out of those who think this report is bang on, how many of you:

1. Undertook these schemes yourself

2. Promoted the schemes.

Whilst HMRC have acted shoddily, and people have been mislead, it seems that a lot of the shrillness around this is based on getting caught for trying not to pay your taxes.

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to ireallyshouldknowthisbut
05th Apr 2019 12:23

Speaking personally.

1. Never used this or indeed any other tax scheme (unless you count a pension?)

2. Never promoted a loan scheme.

I will declare that I worked in a "tax house" which did film schemes and other arrangements. Our "customers" were IFAs because they were authorised to speak with individual clients and we were not. Just how difficult would it have been to have repeated that arrangement with contractors?

Instead we see a multi billion pound industry with absolutely no regulation.

Whose fault is that? Politicians. Is that in the report here? Absolutely not.

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to G Webber CTA
05th Apr 2019 17:37

Good to know.

Justin is very quiet about this point!

*coughs*

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By tedbuck
05th Apr 2019 12:22

I like the idea of MPs screaming incompetence at HMRC however deserved it may be something like pots and kettles springs to mind.

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By enanen
05th Apr 2019 12:30

Are you all saying that tax should not be accounted for on these receipts of money by people as loans but were more than likely income? Do you disagree that tax should be paid on these earnings?

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to enanen
05th Apr 2019 12:49

I think tax is due on those earnings.

That situation is what HMRC claim has "always" been the case but have been unable to produce any legislation to support. They do have a case (Rangers) which says tax is due and it's due from the employer.

HMRC has been unable to support its case but insists that they told everybody this in 2004. This report says that they did not do so adequately and that they had ample opportunity to change the law and did not.

So, if contractors knew the tax was due because HMRC and the law said so, would they have used these schemes?

Some would have done. I can say with confidence that 90% of more would not have done.

It's also a long stretch to justify the multiple failings of HMRC and HMT by saying tax should have been due.

If tomorrow HMRC decides that every cup of coffee you bought should come with a £1 tax, here's a bunch of misleading statistics and misinformation to support that and a high pressure collection approach to go with it, does that make their actions right?

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05th Apr 2019 13:14

At the heart of this is a scheme that basically said 'we'll pay you and you'll pay no tax on it'. Anyone without an interest in promoting these schemes could see that from a mile away.

MP's can holler all they like but HMRC are doing what they are employed to do: collect taxes on earnings. In this case they have taken way too long to do so, so perhaps instead of chasing these people for money right now they should leave the charge in abeyance against assets or better yet spread the payment interest free over the next twenty years.

By spreading it over 20 years they will collect the tax that is owed but without all the current drama.

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to Ian McTernan CTA
05th Apr 2019 21:55

Not exactly, Ian. HMRC's job is to collect tax properly due within the confines of the law. the law has a statute of limitation.

Instead of abiding by that statute, HMRC have elected to introduce a new set of laws to bypass it, thereby covering up their own failings and criminalising the public to do so, breaking up families, destroying future job prospects etc.

And in the interests of full disclosure, I have never advised on anything I consider suspect other than to advise against.

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By Tornado
05th Apr 2019 13:19

"an organisation out of control, urgently needing better and proper scrutiny and genuine accountability"

What an outrageous thing to say ... but true of course.

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05th Apr 2019 13:56

Key though is the amount of scrutiny of Finance Bills - time allocated in Parliament is minimal

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05th Apr 2019 14:10

Am I being naive? I thought MPs passed legislation, not HMRC. Surely they understood what they were voting for when the Finance Act including loan charge legislation was passed?

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to tonyaustin
05th Apr 2019 14:47

Agree. They have to deflect onto HMRC otherwise it will land on them.

Does no one have a vested interest in all this?

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to tonyaustin
10th Apr 2019 11:29

You are being ridiculously naïve to think that they understood that! Do you really honestly think all this incomprehensible tax legislation was actually scrutinised let alone understood by MPs!?

Indeed, if you watched the debate on 4.4.19 you will have seen that this very point was made very clear by David Davies who confirmed that the HoL had also made the same complete lack of oversight point in their report.

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By HLB
05th Apr 2019 14:27

What HMRC is doing is bypassing the Courts. It is a judge that decides whether a taxpayers actions were right or wrong.

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By PBH64
to HLB
05th Apr 2019 14:50

I'm not sure they are. Treasury proposed the policy; Parliament has passed the law; HMRC are applying the law as they see it works; the taxpayers can appeal both on the facts of the case and under the human rights act. We just haven't got to the trying it in court bit. Perhaps the bit that isn't getting attention is wondering if before policy making passed to the Treasury IR or HMCE would have allowed this to occur?

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05th Apr 2019 14:55

In not acting sooner HMRC has put everyone between a rock and hard place:

1) Option 1: Let all these scammers get away with it

2) Option 2: Collect the tax in a way that leaves a bad taste and gives us all concerns re the laws HMRC can easily persuade Parliament to pass.

Around Option 2, I can see why people are concerned, but let us not forget that for every 10 tax advisers loudly defending these scams and saying people should get away scott free (Hi Justin) there are probably at least 6 who have a vested interest in that view as they used/sold/allowed clients to use these schemes themselves.

Are all these loud voices solely motivated by a desire to defend the purity of the tax system? Or are they part of the crowd of contractors and advisers who hope to get off scott free for their various parts in all this?

Personally, I'd draw the line in the sand at the date of the DR rules as they clearly signalled Parliament's view that they had had enough. Anything done after is fair game for collection - by whatever means.

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to AnnAccountant
05th Apr 2019 15:29

Looking back over previous visits to this subject I see that you have a very purist view and automatically brand any user of such a scheme as doing so knowingly and with malice aforethought.

This despite others in the past advising you of their circumstances in which they took part. Clearly you are unimpressed with their tales, many of which I can verify.

So be it.

Just remember that it's sometimes difficult to see the mud of real life from the top of an ivory tower.

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to G Webber CTA
05th Apr 2019 15:53

I recall spending time trying to listen to someone who claimed to be an accountant - but who could not see how the loan asset he received from his EBT was something valuable that could be taxed.

I gave up listening after that. I think he had told himself so many lies for so long he had started to believe it.

Maybe when a scammer:
- Accepts some responsibility for what they did in their BUSINESS affairs
- acknowledges how scammy the whole thing was and - that they were never going to repay the loan
- it was all a sham designed to pay no tax so they could act like the big man down the BMW dealership;

Then perhaps I will start to find some sympathy.

After all the years and all the lies, I don't think it is so unreasonable to withhold sympathy until they at least meet part way.

Btw - I bet your ivory tower is taller than mine - with all the subscription money for the "secret solution" you collect.

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to AnnAccountant
05th Apr 2019 16:07

Oh dear.

We're not in a playground where name calling counts for anything.

We're dealing with real people who stand to lose EVERYTHING because of what was, in the vast majority of instances, a genuine mistake.

They will lose financial security, family, relationships, careers and in some cases their lives.

If you are prepared to write them all off on the basis of a discussion with one clearly deaf accountant I suggest your sense of balance needs adjusting.

This is my last exchange with you as I'll never convince you of anything you have not already decided.

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to G Webber CTA
05th Apr 2019 16:56

I'm sorry if my mention of "ivory towers" offended you and you regard it as "name calling".

But, and not to wish to sound like we're in a playground, you definitely "started it" there!

In general, I don't think the hardship people will suffer is a particularly good argument - which, by the way, is because they spent the tax money on good times rather than saving it.

I often think that someone knows they have lost the argument when they start to bring feelings into it.

It also ilustrates how little responsibility they are prepared to accept - ie its all the taxman's fault for making them sad. Erm, no, they entered into a scam AND spent all the tax money.

But we could spend all night repeating the points we have been making for months. No value in it.

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to AnnAccountant
05th Apr 2019 17:05

Hi, I am a contractor caught in all this. I left a PAYE role to contract and was recommended a scheme by an agent (surely getting a kickback, I see now). This was also outlined as a condition of the contract (not sure now if that was even legal), and as a way of staying compliant with HMRC’s IR35 regulations (rules for contractors so they could remain working on one contract). The scheme was backed by QC advice, HMRC were aware (under their DOTAS requirements) and I signed-up.

Remember, as a contractor, we do not get sick-pay, holiday-pay, Death-In-Service benefit, life cover, pension, job security (I am on one-week’s notice). At the same time, we bill for VAT at 20% which is paid straight to the Govt, so we are taxpayers too.

Now, due to my own naivety I owe hundreds of thousands of pounds, will need to sell my home and uproot my young family, pay away ALL my savings, AND agree to TTP (Time To Pay) agreement with HMRC over, perhaps 20 years, meaning I can forget holidays, retirement, owning a home, helping kids out, etc etc. Bankruptcy has been considered, also (briefly) suicide. My family deserve better than me as breadwinner.

I agree we were naïve, stupid even, but can you not see that the HMRC reaction is out of kilter with the “crime”, that the real criminals were those touting such schemes, and that some kind of compromise could be reached in which the contractors pay some funds back, but the HMRC also realise their own complicity of 20 years of inaction in closing down such schemes and promoters?

Thanks for listening. In despair, BankruptContractor.

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to BankruptContractor
05th Apr 2019 18:35

@contractor, pretty much everyone on here is self employed, so you don't need to get your violin out about not getting sick pay.

Sorry to see you duped like this. Albeit to have end up owing that much money, you must have been earning significant sums and/or been up to your neck in this for some years, and paid no tax, so my sympathy is somewhat limited in that you have already enjoyed the money to fund your homes and holidays etc. Taking tax free cash in the VAT bracket suggests a considerable amount of naivety that "this is ok"

In such cases the blame may lie with the scheme promoters. Many of these are still around, now selling dodgy R&D tax credit schemes amongst other things. I assume you have tried to sue the pants off them? Individuals who are a member of professional bodes you could try and drag through their own disciplinary procedures. They cant rely on a corporate veil of the presumed long since closed trading co's.

General tip: anything with "QC's advice" is invariable a scam. Proper tax planing does not the scheme promoter to find and pay handsomely a QC to say they have a potential argument in court that the scheme might work, it just works based on generally accepted understandings of the legislation. So if you see a QC quoted, treat with very high suspicion. Along with "your accountant wont understand this"

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to BankruptContractor
05th Apr 2019 22:34

@ BankruptContractor

So you left a PAYE role, why was that? I guess you thought you could avoid some tax and NI contributions by working through a PSC? A PSC that had none of the aggravation of finding and bidding for work and no real chance of not getting your 'invoices' paid. So along comes IR35 and sours the honeypot, your response is to jump on a really dubious scheme (so dubious its even registered as such) and you've gotten away with paying no tax or NI for twenty years.

It's taken HMRC twenty years to catch up with you and your partners in crime - did you and your champions here ever stop to consider that might be because they too are in the same boat as the underfunded, overworked , under resourced social worker?

If you were wrongly advised or misled by professionals you paid fees to then sue them to recover your costs.

I am a small heating contractor -I lurk here to help myself understand some of the areas of business that don't come naturally to someone 'on the tools' but even I can grasp the basic concept of tax and that loans must be repaid.

I get no holiday, sick pay, DiS, life cover, health insurance, pension or job security, I have a nil notice period, I bill VAT and pay up each quarter.

I have to tout for work, produce extensive tenders at my own cost often with no real chance of winning the work, then for work we do get - chase the money for months, cash flow large retentions and so on, it's no picnic.

Oh and to cap it all, over the last twenty years I've had to pay hundreds of thousands in tax!

Because I have to hand over so much of 'my' money to the taxman we can't afford to own our own home outright, can't remember the last time we had a holiday (we have the occasional week off to catch up with domestic jobs that we can't afford to have done by someone else) and any real chance of properly retiring is likely to be when we are past enjoying it.

No doubt now that you are insolvent, homeless and sick through stress you will want aid from the welfare state and NHS that you haven't contributed to for twenty years!

Thanks for listening, Incredulous tax payer, Simon Willett.

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to AnnAccountant
08th Apr 2019 10:56

Ann I think you have the ability to test the patience of a Saint and you should avoid these blogs if you have no ability to reason. I am that 'claimed' as you put it, accountant, with qualifications to prove it, so get off your high horse and for once please 'try' and listen.

The loan was NOT to me but to a company I own, the company applied to the trust for a long term loan because of contracts it had signed in 2007 on the basis of bank loans reliably offered. Those reliable offers failed as a result of the 2008 banking crisis. The loan is legally constituted with security, interest and repayment conditions linked to the sale of the long term development project. It is a legally binding contract between a Guernsey Trust and a Spanish Company, which HMRC are attempting to interfere in by unscrupulous means. The loan WILL be repaid and there has been NO tax saving as a result of the transaction. The loan however cannot be repaid in cash ahead of 5/4/2019 and there is no legal obligation for it to be repaid at this time.

So here's the fair legislation for you::: HMRC say that a legally constituted loan between two offshore entities of which HMRC have no jurisdiction over whatsoever, and made in 2008, is taxable at the astonishing rate of 60.8% of the value of that loan on the UK Settlor company, and once that Settlor company is bankrupted, HMRC will turn to me personally to collect the 45% paye element of that loan and bankrupt me. When the long term development project concludes with sale of the development which has as a result of Brexit been put in doubt, the Spanish company is legally obliged to repay the trust which is will do. The trust them has the money to make distributions on which tax would be applied. However BEFORE that has happened HMRC are seeking to collect that tax through the PAYE system. That stands for Pay AS You Earn, but this is a nex case of Pay Before You Earn !!! Please listen Ann and grow up.

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to Exfoliate
08th Apr 2019 14:47

Always someone with a "special case".

I think I advised you last time to tell it to a judge once I got bored at calling out the parts of your story that didn't make sense.

I reiterate that advice.

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05th Apr 2019 16:37

If they get away with this I have a good scheme

Dr Sales 100k
Cr bank 100k

What's the difference ... it's just wrong.

If you can't do the time don't do the crime.

How did it go again...You get your pay as a loan and there's no tax.....ooh ... when do I have to pay it back as it's a loan.... never...is that allowed... yeah sure...go on ...we make loads of fees out if this....

if it smells like a fish...

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05th Apr 2019 16:31

I may have sympathy in some of the circumstances described, if the affected persons can answer 3 questions:
1) What do you think a "loan" is and does it not imply the need to repay?
2) Was there a genuine intention that you would repay these amounts?
3) Absent some exceptional factor (winning the lottery), exactly how did you propose to repay?

There could be many supplementary questions along the same lines.

I rather feel there was never a genuine intention to repay in the vast majority of the cases referred to (perhaps a view supported by the fact of bankruptcies etc) and therefore, to call them loans was at best inaccurate.
I am happy that people should benefit from the protection of the law when it is properly due. Unfortunately I doubt many of the alleged 50,000 affected would meet the test.

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05th Apr 2019 18:29

Just because someone [e.g. a contractor] is intelligent it cannot follow that they necessarily have any knowledge of financial artefacts.
I even know accountants who are hard pressed to decide if some obscurely defined figure is a Dr or a Cr. When is avoidance evasion [when HMRC sees a fast buck?].

The lines are not black and white even for 'the profession'.
If these folks rely on a professional - a QC even, and schemes are registered with HMRC then why should they not feel safe.
The disparaging comment 'a loan is obviously something that has to be paid back' obfuscates as badly as the explanation of some of these schemes. 4% consols were a loan - how many lenders will get their investment back? None - they're all dead.

These were NOT scams by the written statute at the date - they have been turned into scams by subsequent statute.

The argument that people 'should have known better' fails in any civilised society with a legal system driven by and regulated by statute. Morality and ethics has nothing to do with written statute.
Its that old nut that 'what Parliament meant when it passed that bill . . .' is different from what the statute actually said.

My hope is that the 'holier than thou' crew get their just comeuppance one day frome something similar.

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to dgilmour51
06th Apr 2019 18:15

I have had to wait 24 hours before responding to dgilmour 51 because I found his post insulting on so many levels (as well as sheer twaddle).
First, there is no difficulty in understanding whether you have been given a loan or whether, in reality, that is simply what you tell HMRC in order to gain a wholly inappropriate tax advantage.
Secondly, far too often I read comments like the scheme is "registered" with HMRC (and others perhaps even less accurate) which are designed to infer some sort of approval. That might be the rubbish the promoters tell the gullible users but we all know (or should) that it is nothing of the sort. DOTAS means the disclosure of Tax Avoidance schemes. How can one possibly infer that anything here can be equated with formal approval by the tax authorities?
I find most offensive the attempt to equate the "loans" here with 4% Consols. which were bonds issued by government to help pay for the first world war. It does however indicate the real problem here. As a result of the sacrifices made by millions in 2 world wars, the gullible and greedy are now able to earn an often, very good salary / income. Had everyone been as greedy as they, I very much suspect we would be in a much different world and perhaps one where "avoidance" such as this would meet much stiffer penalties. The government needs taxes to help pay for what has past and what has yet to come. It's all very well to say morality and ethics have nothing to do with tax but I beg to differ.
If the users of these schemes had paid tax on their income without resorting to what could at best be considered doubtful arrangements, the Chancellor may indeed have been able to repay 4% Consols (and other national debt) rather sooner. In point of fact that nice Mr Osborne did repay those loans in late 2014 so the comments are wholly inaccurate.
I would suggest the problem is not with the legislation enacted by Parliament, nor indeed the way it is applied by HMRC and the Courts. As with almost everything, it depends on the facts and as long as people maintain the argument that these are genuine loans, however ludicrous that may seem and however dishonest it may be, it is unlikely the courts will apply the legislation differently.
Faced with that, can you suggest how HMRC (or more accurately the Government) should have responded?
Surely you would not want them to tax all loans (genuine or otherwise) as income? I can just imagine the postings to AW.
To tax only those loans that have all the appearance of income is surely a more considered answer.
I am not saying that I do (or do not) agree wholly, with the charge, but it is what Parliament has enacted. What Parliament put in the bill is what is being applied. Not what some (possibly with their own agenda) would like it to have said.
Incidentally, having seen the unholy mess they are making of Brexit, I don't think we should pay too much regard to what MP's write about a subject they possibly know even less about.
Finally, I assume I an right up there with the "holier than thou" brigade. I can assure you I will never be caught out by something like this for the simple reason that I follow that infallible rule, " if it looks too good to be true, it probably is".

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