Loan Charge

Lord Bellingham Excerpts

Thursday 11th April 2019 Commons Chamber

[Adam Holloway]

I thank my hon. Friend and absolutely agree.

My view has since shifted, however, as I have come to understand more about their circumstances. These people are not pocket Al Capones out to defraud the system; they are self-employed professionals who are contracting to different entities, paying their own pensions, without the protection of regular employment, and trying to avoid the complexities of IR35. I guess any of us would wish to minimise the tax we pay, and HMRC knew about those arrangements for decades and was slow in taking legal action, and inept in shutting it down.

[Sir Henry Bellingham (North West Norfolk) (Con)]

Does my hon. Friend agree that one of the great iniquities here is that HMRC knew what was going on but did not actually do anything about it with expedition and decisiveness at the time?

[Adam Holloway]

Absolutely, and now of course it is pursuing an aggressive policy that, on any analysis, is retrospective on my constituents. These constituents may have been naive and over-optimistic, but most of us are in no doubt that, for many years, they all believed that these schemes were lawful and an effective means of mitigating their tax. I therefore support a delay to the implementation of the loan charge to allow an independent tribunal to assess the issue of retrospectivity, and, in light of that, to consider whether the loan charge is fair and proportionate after taking into account, first, the failure of HMRC to take effective action for all those years, and, secondly, the fundamental protections that every taxpayer should expect.

Finally, I fear that this policy is another example of how those at the very highest echelons of our Government seem to have a tin ear when it comes to the good people whom they represent.

--- Later in debate ---

[Mel Stride]

I am afraid I will not. I want to make progress, as there is a lot to cover and little time.

For the benefit of the House, let me set out the heart of how these schemes work, so that we are clear on that point. An employer can engage an employee and pay them in the normal way, by way of earnings, in which case national insurance for the employer and the employee is due. Income tax must also be paid by the employee. Alternatively, they can use a loan scheme, which generally works like this: instead of the employer paying the employee in the way I have described, money is sent out to a low or no-tax tax haven, and placed in a trust. That money then comes from the trust back to the United Kingdom, where it is treated as a loan, even though there is no intention of ever settling that loan or paying it off. Because that money it is treated as a loan, it is claimed that it does not incur any national insurance or income tax because it is not earnings.

When confronted with the reality of how these schemes work, most people would say that that is not right. That brings me on to one of the most commonly held misconceptions about these schemes and the loan charge, which is that the loan charge is retrospective. There was never a time in the history of our country where the model for payment that I have just outlined has ever been correct within the tax rules of any previous year. That is a simple fact.

[Sir Henry Bellingham]

Will the Minister give way on that point?

[Mel Stride]

I will not give way just yet. My second point is that the very nature of this means of payment, of tax avoidance, is that it involves a loan that is still outstanding—those loans are still outstanding today, at this very moment, for any schemes that still persist. It is a simple fact that most people, including the 99.8% of the tax-paying public who did not go anywhere near these schemes, would have concluded that if something looked too good to be true, it probably was too good to be true.

--- Later in debate ---

[Mel Stride]

I have no time, I’m sorry.

The second very important matter I would like to address is the interaction between vulnerable people and HMRC regarding disguised remuneration and the loan charge, including where there are mental health issues. Let me make it clear that wherever HMRC is engaging with vulnerable people, it will do everything it can to ensure that they have all the support they need. This support includes a helpline that is dedicated solely to looking after loan charge customers, with a team fully trained to identify those who may be vulnerable and to provide appropriate support. Where necessary, HMRC will always refer individuals to the right external sources of support.

[Sir Henry Bellingham]

Before the Minister moves on, will he give way?

[Mel Stride]

I have little time and I must cover the ground. HMRC also has a vulnerable customers team available to provide specialist, one-to-one support for vulnerable customers in need of it. Today, I can confirm that HMRC will be expanding its specialist service for customers with additional needs so that it will include anyone who finds their tax affairs under scrutiny. As we roll out that additional support, we will start with those affected by the loan charge as our first priority.

I appreciate that facing any tax bill is unwelcome, but it is only right that we deal with disguised remuneration. When we fail to do so, we are effectively saying to the 99.8% of taxpayers who have not been involved in these schemes that we expect them to pay more, and we deny our vital public services—our nurses, teachers, doctors, police and many others—the funding that they deserve.