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  • NC26: The Spirit of Parliament Inflicts Embarrassment on Government & HMRC

    9 January 2019

    Andy Wood

    What was NC26?

    NC26 (New Clause 26) was a cross party amendment to the Finance Bill proposed by the Liberal Democrat MP, Sir Edward Davey MP.

    In short, it asked for a review of the Government’s highly controversial, and deeply pernicious, April 2019 Loan Charge (“loan charge”). 

    The amendment passed unopposed late last night in Parliament with only Mel Stride, the Treasury Minister, offering any words of support for the measures.

    What is the loan charge?

    For the sake of brevity, here is a link to an earlier article setting out the details of the loan charge.

    But how did we get here?

    Of course, with new legislation, there may well be unintended consequences. Certain issues may arise that were not anticipated or flaws are discovered as things develop.

    However, this has not been the case with the loan charge.

    Back in October 2017 we sent a 21-page letter of evidence to the Finance Bill Committee setting out our concerns about this measure. Although, some minor amendments might be made to this letter if I were sending it again, there is no fundamental issue that has come to light over the course of the 14 months or so that was not considered in this letter. No surprises have come to light.

    As one tax adviser told me at the time I posted this, this letter was the ‘tax equivalent of p@ssing in the wind’.

    Indeed, a review of Hansard in respect of the Committee Stage showed that these measures were given very little time. As far as I am concerned, this is a weakness in the legislative procedure which really needs to be addressed.

    The loan charge mantle was firmly taken up by the Loan Charge Action Group (“LCAG”). This group has rallied support from its members and has lobbied MPs with a military precision (and with hilarious effect when Mel Stride appeared on Iain Dale’s LBC radio programme). 

    An Early Day Motion (‘EDM1239”) was tabled by Stephen Lloyd MP, another Liberal Democrat MP, in May 2018 as he had deep concerns with these provisions. I met with him around that time and he was one of a number of MPs who have shown an appetite to get to grips with tax law and fight their constituent’s corners.

    As things stand, there are 114 signatories to the EDM. 

    HMRC turns lobbyist?

    However, then something curious happened. The recently honoured John Thompson, chief executive of HMRC, then wrote to each signatory of the EDM in July 2018 setting out why they were wrong to support it.

    Think about it. 

    HMRC, whose role is to manage the tax system, were writing to the MPs, those who make the law, trying to sell to them these new measures.

    As a result, I decided to write my own letter to the signatories setting straight a number of ‘inaccuracies’.

    In the end, it seems that Mr Thompson’s letter seems to have had little effect.

    What next for affected taxpayers?

    Of course, this is a welcome victory for taxpayers and activists alike. It is clearly a bloody nose for Mel Stride and HMRC.

    However, HMRC will not easily let the estimated £3.6bn of revenue slip through their fingers. Remember, they are an organisation that are charged with keeping up the levels of turnover and a volte face on the loan charge would be a big dent in their pipeline.

    It should be noted that all this does is makes the Government review the loan charge. Who will undertake that review? Call me cynical, but what if this is undertaken by HMRC or by the Treasury? Is this likely to recommend that the plug is pulled?

    My understanding is that this review needs to take place before the end of March. 

    What if the report comes back on 31 March 2019 and says that the loan charge is absolutely fine? What if we are told, ‘don’t worry, we’ve looked at it quite closely and it is not retrospective’.

    What if we are told that it is full steam ahead? 

    The loan charge has already long since received Royal Assent. It is already the law.  It would, without any further interventions, still trigger in April 2019 as expected.

    Of course, the highly effective activists would challenge this but such a challenge would be added to the pile along with the Judicial Review in to the human rights aspect of the measures.

    In terms of advising people, this does not make things easy…

    As we have seen, many people are in conversation with HMRC regarding the settlement opportunity. It must be said that the loan charge was, in reality, the stick forcing those affected in to settlement. Forcing them in to voluntary restitution for many periods where HMRC’s ability to collect had withered on the vine.

    What about people who have already settled and entered in to a contract with HMRC? Even if the loan charge was now to die a death, have these taxpayers shot themselves in the foot? A failure to keep up payments under the contractual settlement would certainly be something HMRC could enforce.

    Some of these people will also have spoken to the scheme Trustees and organised for loans to be ‘released’? They may have paid a fee to do so. What would the consequences be here if the loan charge, again, died a death?

    What about people who have a settlement offer on their desk and are mulling it over or have just not got around to accepting it? Should they now wait until the review? However, what if the review does not report back until the end of March? HMRC have only said that they will only honour the settlement entered in to in the next tax year if the delay is ‘solely’ as a result of HMRC.

    At present, as with the Judicial Review referred to above, it seems that one still needs to take action before 6 April 2019. At the moment, waiting for the outcome of either the JR or the NC26 review is not an option.

    This is why the Government should announce immediately that the loan charge should be delayed for at least 6 months pending the outcome of this review. Similarly, HMRC’s settlement opportunity should be extended as well.

    What next for tax law-making?

    Let us hope this represents the nadir of tax law-making.

    Do not forget that this is an existing piece of legislation. It is not a consultation. It is not a piece of draft legislation. It has already received Royal Assent.

    In terms of the Finance Bill, a small committee of MPs debate the new measures. It is clear from Hansard that these Schedules received little attention from the Committee (consisting of 19 members plus 2 chairs) after being sold to them by Mel Stride.

    We have seen 114 support the EDM and NC26 passing without the loan charge receiving a flicker of support from anyone other than Stride.

    With that in mind, what is Parliament’s intention in relation to the loan charge?

    If you have any issues in relation to the loan charge, or any other tax matters, then please get in touch. You can also read more recent news and reports about the April Loan Charge below…