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  • Loan Charge Review: Is Review Head the Focus of Unfair Criticism?

    27 September 2019

    Andy Wood

    2019 Loan Charge – Under Review

    Whenever I sit down to write another ‘blog about the Loan Charge, I must confess to doing so with something of a heavy heart.

    It’s not necessarily the subject matter in itself. After all, myself and my colleagues at ETC Tax have found ourselves dealing with many cases and many more enquiries about the Charge since it was first announced back in 2016.

    I’m simply aware that the debate about the measure is incredibly charged. On top of the natural anxieties of those facing large and possibly ruinous tax bills stemming from their involvement in what ministers deemed ‘disguised remuneration loan schemes’, the Charge has long been used as something of a political football.

    Loan Charge Review: Is the Review Head the Focus of Unfair Criticism?

    For the uninitiated, the Charge was the measure introduced by the Government to raise revenue from individuals of all shapes and sizes who had entered into schemes which, broadly, provided for them to be paid by loans rather than a salary.

    If successful, such an arrangement would reduce the Income Tax and National Insurance (NICs) payable on the sums received.

    As I remarked back in April, despite objections to the hardship which an estimated 50,000 individuals in the firing line might face and at least one suicide purportedly linked to the Loan Charge, the Government vowed to press ahead with it.

    Nevertheless, in an effort to appear fair, earlier this month it that announced an independent review of the Charge would be led by the former Chief Executive of the National Audit Office (NAO), Sir Amyas Morse.

    Sir Amyas Morse & Jesse Norman

    In comments which sounded like a bloke who’d just given you a good kicking offering you a wet-wipe, Financial Secretary to the Treasury Jesse Norman stuck to his guns.

    He said that he remained convinced that the disguised remuneration schemes amounted to “highly contrived attempts to avoid tax” but added that it was “right to consider if the Loan Charge is the appropriate way of tackling them”.

    The loan charge review, he continued, would report back in mid-November, a date which would allow those affected to take its findings into account while preparing the self-assessment tax returns which are due to be submitted by the end of January.

    Nevertheless, the review has already come under fire from some who reckon that it might not be as independent as it could be.

    Coming Under Fire… Parliament, Politics & Maximising Revenue?

    The Liberal Democrat MP Stephen Lloyd, one of the Loan Charge’s most ardent parliamentary critics, has dared to claim that the Treasury may “evade robust and real scrutiny” because Sir Amyas Morse is already too close to its thinking on the measure .

    Among his concerns are that Sir Amyas had also made reference to the use of “highly contrived schemes” in a 2012 report on tax avoidance, which included a mention of the very loan schemes so despised by Government.

    Having studied the mechanism of the Loan Charge in detail and heard of its prospective impact from a great number of clients, I can understand how similar terminology in that instance and praising HMRC for “maximising revenue” might seem a little alarming to some.

    However, I think that Sir Amyas’ critics may be doing him something of a disservice.

    During a decade with the grand working title of Comptroller and Auditor-General and Chief Executive Officer of the National Audit Office his organisation’s role was not as apologist for Cabinet but to “hold government to account and improve public services

    He also seems very much his own man.

    When he stepped down, Sir Amyas – a fan not only of classic music but of the award-winning British alternative rock performer PJ Harvey – gave a series of illuminating media interviews.

    In one, with The Guardian, he described himself as “angry” when confronted with “badly-thought-through programmes and wasted public money”.

    To The Times, he took exception to what some people regard as part of the essential culture of Whitehall.

    “Raised expectations, broken promises and a culture of secrecy are eroding public confidence in government”.

    Even those at the very sharp end of the Loan Charge – contractors themselves – appear to have time for him.

    Sir Amyas has not only issued a broad call for relevant evidence about the measure and, according to one report, has “made clear that he wants to meet as many people who want to come forward”.

    I think that it’s important to judge Sir Amyas and his review on the work that it does now and the report which it ultimately produces, not on interpretations of what he may have said or done in the past or even the contents of his CD collection.

    Even before starting work, he was aware that the Loan Charge debate was steeped in rhetoric.

    He will also, presumably, have read a House of Lords’ committee report published last December which concluded that the Charge was “retrospective” and one of a number of powers which risked “undermining access to justice”.

    If his examination is to stay true to Jesse Norman’s point about whether the Loan Charge is the right way to deal with loan schemes or should be scrapped, I’d like to offer my own suggestions.

    Moving Forwards with the Loan Charge

    I am one of many professionals who, having looked at the measured in great detail, believe it to be neither proportionate nor fair.

    With that in mind, I think that Sir Amyas should consider four constructive options.

    Firstly, he could scrap the Charge altogether. The vast majority of cases (more than 90 per cent, in my firm’s experience) can easily be dealt with under existing HMRC powers as open enquiries or other assessments with Treasury having to write off the others.

    Secondly, he could recommend that HMRC only apply the Charge to balances which date from the point in 2016 at which it came into force – a suitable and sensible cut-off point.

    A third idea would be to apply the Charge from December 2010, when the Government made clear that any new loans should be subject to tax. Anyone using the schemes thereafter should really have given more thought to the risks that they were running (although this would perhaps involve applying ‘constructive’ knowledge in many cases).

    Equally, he could wipe the slate clean with a prospective rule which makes clear that future loans are earnings for tax purposes, leaving no-one in the dark.

    In any event, we have submitted a long and detailed paper to Sir Amyas’ team for consideration. A link to our submission can be found here.

    I would like to think that the review is not necessarily a foregone conclusion but an opportunity to bring a little common sense into the Treasury’s 20-year mixed pursuit of loan schemes.

    Even so, I fully accept that only doing away with the Charge would be classed by its critics as a victory or what Sir Amyas’s beloved PJ Harvey might regard as “Good Fortune”.

    If you have any queries about this article, the loan charge review, or our submission to Sir Amyas, then please get in touch.

    Read more about the Loan Charge below…