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  • Won’t back down: HMRC launches defence of loan charge

    2 April 2019

    Andy Wood

    Very recently, I had cause to write on this ‘blog about the increasingly strident way in which HMRC has been referring to its attempts to recoup tax, especially from those whom it regards as trying to dodge their fair share.

    My remarks were prompted by an article in The Times which lauded the success of the Revenue’s “machine ” in tackling tax avoidance.

    The comment piece was notable in its own right as an unusually favourable take on the Treasury’s efforts to close the notional ‘tax gap’ – the difference between what’s believed to be owed by taxpayers and what’s actually received by HMRC.

    I reckon that it was even more interesting, though, in that it marked something of a sea change.

    To maximise the combative metaphors which the Times’ article adopted, the Revenue has been like a boxer on the ropes in the last six months.

    For example, if it wasn’t being mauled by MPs and told that the “cracks are showing” in its performance because of the strain of preparing for Brexit, it was pummelled by a judge who accused it of scandalous behaviour in trying to fine a homeless man for submitting a late tax return.

    Nevertheless, like many punch-drunk pugilists with endless belief in their own ability, HMRC has continued to press forward and this week has actually gone on the attack in relation to the imminent introduction of its controversial loan charge.

    This is, of course, the levying of Income Tax and National Insurance from next month on loans taken from what the Revenue has designated Disguised Remuneration schemes but which have not yet been repaid in full.

    Following a promise from the equally embattled Prime Minister, Theresa May, to review of the measure after impassioned objections about the hardships and six-figure bills acing those having to cough up the cash, HMRC has now published a detailed 49-page report instead, justifying why the charge will take effect.

    Despite suggestions that nurses and teachers were facing the prospect of bankruptcy or even having to sell their homes to meet their obligations, the Revenue has argued that less than three per cent of people affected are in either profession.

    Furthermore, like the rest of the estimated 50,000 people involved, the taxman has pledged to treat those in the health or education sectors who receive demands “sympathetically and appropriately”.

    The principal focus, says HMRC, is not on individuals who might have fallen foul of “unscrupulous” scheme promoters but those who knew full well what they were doing.

    Rather than pursue lengthy litigation with tens of thousands of taxpayers, the Treasury regards the loan charge as an opportunity to “draw a final line” under all loans taken from Employee Benefit Trust (EBT)-type schemes since 1999.

    It’s a rebuff which will no doubt be hard to take for those who will no doubt be dreading the rattle of the letterbox and the sight of HMRC’s brown envelopes come the end of next week.

    Having dealt with people who did not earn enormous sums but were convinced by their financial advisors of the legitimacy of adopting EBTs, I appreciate their disquiet.

    However, our lives are lived in glorious technicolour rather than in black and white.

    Let’s not forget, the loan charge was not introduced as a means of rinsing those working in lower paid and precarious jobs [Nb -we are told that some scheme users were told they had to use the umbrella scheme with bolt on loan arrangement or get on their bikes].

    No, the case which brought the whole thing to a head after a decade-long running battle between HMRC and Glasgow Rangers football club, which had sought to remunerate some of its stars this way before going into administration.

    We have spoken in the past about how the result of this case was perhaps a surprise to HMRC. The loans were found to be genuine loans and did not trigger a tax charge. However, it was found that tax was due at the front end when paid in to the scheme by the employer.

    It was the difficulties in this case, and the many that went before it, that gave birth to the loan charge.

    However, even with the most careful family planning, one never knows whether the resulting offspring will end up being a runt.

    So when Rangers, somewhat surprisingly, held that we should have been taxing the front end all along, but with the loan charge targeting the back end, we were left with a fiscal Pushmi-Pullyu.

    It was left to the Government / HMRC to decide how to move forward.

    Unfortunately, rather than locking up the runtish loan charge in the basement, it was the Rangers decision that was shackled to a radiator next to the tumble dryer.

    However, as if to reinforce the point that Rangers wasn’t the only use of “disguised remuneration” schemes by the wealthy, it’s emerged in the last week that some bankers who took bonuses from the City institution JP Morgan could also be bankrupted by the loan charge.

    As anyone who reads my blog will know, I am far from being an apologist for the loan charge. It is unparalleled in its awfulness.

    However, one can see that this is not a measure that is targeted at the vulnerable. It is targeted at those higher paid workers who have gamed the system all too well.

    But one cannot have a measure such as this which makes distinctions based on the motivations and awareness of the scheme user. This would bring too much subjectivity in to the law further eroding certainty.

    As such, one ends up with lower paid workers who, in some cases were corralled unwittingly in to these schemes, being caught. These people are collateral damage.

    A common argument is that HMRC should go after the scheme promoters. I have no problem with this whilst any action is based on powers available to it at the time. However, with the Enablers regime only coming in to effect in late 2017, HMRC has little teeth. As we have seen, HMRC’s claims to have ‘convicted’ 16 people of promoting these schemes has been found to be a rather blatant attempt at misdirection.

    The real enemy is the retrospective nature of this legislation. As I have said before, I cannot agree with those who argue that this measure is not ‘technically’ retrospective. It is clearly so.

    And no taxpayer or promoter should be suffer at the hands of the tax man retrospectively.

    Retrospectivity is the common enemy.


    If you have any queries on this blog or on the loan charge at all then please do get in touch.