Conservative leadership contender Boris Johnson has backed a call by members of Parliament for an independent review of the loan charge, while his rival Jeremy Hunt indicated he would give the call a sympathetic hearing.
A group of 12 Conservative MPs asked Johnson and Hunt to sign a pledge to suspend the loan charge and launch an official review if elected prime minister, the Loan Charge All Party Parliament Group said in a June 29 release. LBC presenter Iain Dale asked Johnson and Hunt for their response to the MPs’ request during leadership contest hustings in Carlisle June 29.
“I certainly think we should review it. The real culprits in this matter are perhaps not so much the individuals themselves who decided to use [a loan scheme]. It’s the people who advised them that that was a sensible thing to do. And in my view, we should find a way of going after [the advisers, who] have not covered themselves with glory, to put it mildly,” Johnson said.
“It’s a very complicated ethical issue, because after all what these individuals were doing was clearly a pretty clever way of minimizing their tax exposure by treating income as a loan. On the other hand, they were encouraged to do it, and they were told that it was an acceptable thing to do,” Johnson added. “It seems superficially unjust to me that they should then be retrospectively pursued for what they were told was an entirely legal option.”
Hunt told Dale earlier that he would be happy to look at the loan charge issue. “I haven’t seen the details. Obviously, all businesses have to pay their taxes, but I commit to looking into that issue, and if an independent inquiry is what’s needed, then I’ll do that,” Hunt said.
Dale suggested that it “seems incredibly unfair” to have HM Revenue & Customs collecting tax on arrangements entered into as long as 20 years ago. “Yes. It may be, but I’m not going to make a decision on the spot. . . . It’s important that we look at the details. But I will certainly look at them with a lot of sympathy for those people,” Hunt replied.
“The loan charge in its current form is something that no Conservative government should have introduced. It clearly undermines the rule of law, and in one fell swoop wipes away existing statutory taxpayer protections. It undermines one of the most basic principles of taxpayer certainty and is clearly retrospective in its effect,” the MPs’ letter said.
The charge is “doing real damage to thousands of individuals and families,” the MPs said, adding that evidence they had received showed that HMRC was “pursuing people punitively and unreasonably.”
The MPs asked Johnson and Hunt to pledge that, if elected, they will arrange for all HMRC settlement activity to be put on hold. They also asked the candidates to commit “to remove the retrospective element” of the loan charge so that it applies from November 16, 2017, when Finance (No. 2) Act 2017 received royal assent.
Rebecca Busfield, partner at London-based Watt Busfield Tax Investigations LLP, told Tax Notes that she would welcome an independent review. “Something needs to be done because of the impact that the loan charge appears to be having and the number of people involved,” she said, adding that it is not difficult to imagine people being “easily persuaded by a professional adviser that an arrangement is OK.”
Johnson clearly recognizes that some loan scheme users were told that their arrangement was acceptable, Carolyn Walsh, director of Essex-based CWC Solutions, noted. Not being tax experts, they would not have understood that the arrangement could be “defined one day as abusive,” she told Tax Notes.
But many participants “were not just encouraged to use these schemes; they were forced to use them both overtly and indirectly,” Walsh said. In some cases, if an agency worker refused to accept payment via a third party, “contracts were quickly withdrawn in favor of a more compliant individual,” she added.
HMRC is working through the settlement process with disguised remuneration scheme users who came forward to settle their tax affairs before April 5, Financial Secretary to the Treasury Jesse Norman said in a Commons written answer June 27. “Scheme users who chose not to repay the outstanding loan or agree a settlement with HMRC by [April 5] are now liable for the loan charge and should report it as part of their 2018-2019 tax liability,” he said.
Responding to a question about HMRC action against scheme promoters, Norman said no promoters have been convicted so far of criminal offenses related to disguised remuneration schemes. “There are no criminal offenses specific to the promotion of mass-marketed tax avoidance schemes, but HMRC may conduct a criminal investigation into an individual’s actions when, for example, reliance is placed on a false or altered document, or if material facts are misrepresented,” he said, adding that in May six individuals were arrested on “suspicion of promoting fraudulent loan charge arrangements.”