A group of MPs stood before government last week, urging HMRC to reconsider taking action against individuals affected by the retrospective 2019 loan charge.
Steve Baker, MP for Wycombe, led the debate at Westminster Hall. He asked the Treasury to go away, look at the measures again and eliminate retrospection.
The loan charge was announced at the 2016 Budget and will come into effect in April 2019. It targets users of tax avoidance loans, otherwise known as disguised remuneration schemes, which meant they paid less income tax and national insurance. The government is now claiming that tax back by adding together all outstanding loans and taxing them as income in one year.
Catastrophic impact on those affected
Baker explained this action will significantly damage individuals and families.
“The Loan Charge Action Group says that the human impact of receiving a bill for up to 10 years’ worth of tax will have a catastrophic effect on individuals and their families,” he said. “On whom among us would it not have a catastrophic effect? It goes on to say that we are looking at thousands of bankruptcies, family break-ups and suicide attempts, as well as mental illness, unemployment, loss of abode and more. That is a catalogue of human suffering and misery.”
Earlier this year, the Loan Charge Action Group surveyed those affected and found that over two-thirds are experiencing depression because of HMRC’s actions. A further 71% fear bankruptcy, 31% fear relationship breakdown and 39% have suicidal thoughts. “The policy will cost lives,” Baker said.
HMRC has a different view, however. In its impact assessment of the measure, it said: “This package is not expected to have a material impact on family formation, stability or breakdown.”
Other options for HMRC
Baker called for the government to be fairer in its approach. “HMRC must take into account people’s circumstances, and the threat of insolvency should never be used as a kind of extrajudicial punishment,” he said.
Instead of targeting individuals, Baker also asked if it would not be more sensible for HMRC to pursue the enablers of the loan schemes. “I am talking about the client organisations, agencies and umbrella companies, all of which have benefited and which, I believe, hold the most responsibility,” he said. “Perhaps HMRC does not do that because even HMRC itself was using and paying contracts now subject to the 2019 loan charge, working through arrangements that HMRC now declares to be tax avoidance schemes.”
Retrospective action a step too far
Most importantly, MPs across the board said that the loan charge should only apply once it comes into force as law. “In other words, it should be prospective – a case I have made many times – not retroactive or retrospective,” Baker said. “HMRC should be more proactive in advising that such schemes are likely to end in tax charges in the future, and perhaps far into the future.”
Is HMRC acting unlawfully?
Baker added that HMRC’s actions could undermine the rule of law, as many individuals entered these loan schemes believing them to be lawful at the time. “When people have acted in good faith under advice and end up subject to injustice, we must uphold the principle of the rule of law,” he said.