Thousands of innocent people across the UK could be spared from HMRC’s draconian loan charge as MPs saw through the Treasury’s propaganda yesterday. This is a huge win for contractors throughout the country.

Ed Davey, Liberal Democrat MP for Kingston and Surbiton, tabled the amendment (read new clause 68 here); it was signed by 38 MPs of all colours in an overwhelming show of support.

MPs triumph over HMRC loan charge propaganda

To say the loan charge proposal has been controversial would be a gross understatement.

The biggest opposition, however, has arisen from the retrospective nature of the charge, with HMRC able to backdate so-called ‘owed tax’ to 1999 with added interest, despite the condemned ‘tax-avoidance’ schemes being not only legal at the time but actively encouraged by national employers like the BBC and NHS.

HMRC argued that it could claw back roughly £3.2bn in ‘owed’ tax through the loan charge.

The moral obligations and abuse of power displayed by the loan charge proposal has been questioned extensively, from contractor forums and blogs to the House of Lords, who released a scathing report back in December, damning the entire proposal.

The authority stated that ‘HMRC appears to be prioritising recovery of tax revenue over justice by targeting individuals, rather than promoters (who could be considered more culpable), so it can more easily recover liabilities.’ This seems to be a common trend for HMRC.

HMRC lack of empathy

The Treasury’s complete lack of empathy about the proceedings has been noted several times, with a debate lead by Steve Baker MP in November showcasing multiple cases of personal suffering because of the merciless charges.

These cases were called a ‘catalogue of human suffering and misery’, with Mr. Baker stating: ‘On whom among us would it [the loan charge] 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.’

Mr. Baker also highlighted HMRC’s own use of PSCs and umbrella companies that they now vehemently declare were never legal in the first place. He suggests that ‘perhaps HMRC does not [go after the employers] 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.’

Unlawful retrospective loan charge

Initially, the amendment only looked to remove the retrospective element of the loan charge. However, this didn’t happen; the government did not table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill.

Mel Stride, financial secretary to the Treasury, has agreed to a review despite this, which will assess the impact of the diabolical loan charge.

Mr. Davey MP states that ‘this review is about an important tax principle'. The government are in effect in breach of the rule of law with the retrospective nature of their loan charge. While Ministers have listened, the review that’s now been established must respond to the concerns of MPs across the House. Treasury Ministers have a duty to respond seriously and substantively.’

Steve Packham, spokesperson for the campaigning group Loan Charge Action Group (LCAG), commented that ‘many individuals facing life-ruining bills for tax that they do not believe they owe for schemes that were always legal now have some hope that this draconian retro-tax grab will be halted.’

Mel Stride’s ungracious acceptance of loan charge defeat

This hope is crucial for middle- and lower-income contractors, but Mr. Packham warns that ‘the review must be a genuine one and not a whitewash by the Treasury, who have spent months misleading MPs and covering HMRC’s failures. If it is genuine, like the recent House of Lords report, it will expose the reality of this damaging and unfair measure.’

It was also noted by Phil Manly, partner at DSW Tax Resolutions and a prominent LCAG campaigner, that Mel Stride was particularly ungracious while accepting defeat.

Mr. Manly states: ‘He conceded to having a review, but then tried to pre-empt its conclusion, parroting the same misleading information the Treasury have been peddling for months. As he knows full well, but again deliberately misrepresented, the Rangers case says employers are liable, not employees. He also continues to claim that the schemes were defective, but he knows that this is meaningless and has no basis in law, especially as he also knows the schemes were legal at the time.’

While HMRC seem to be experts in truth avoidance, it appears that the government are now wising up to their use of power and are finally bringing them to heel.

More will follow as events progress.

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