Loan Charge

Baroness Winterton of Doncaster Excerpts

Thursday 18th January 2024 Commons Chamber

[Sammy Wilson (East Antrim) (DUP)]

I beg to move,

That this House is deeply concerned that HMRC has confirmed the suicides of 10 people facing the Loan Charge and that, despite the Morse Review, thousands face unaffordable demands, with the risk of further suicides; notes that HMRC has also confirmed 24 cases of serious harm, including 13 suicide attempts; believes that many people who used schemes were victims of mis-selling, and that in other cases employers and agencies pushed people into using them, yet HMRC is demanding all disputed tax from scheme users, not from those who recommended, promoted and operated the schemes; further notes that section 44 of the Income Tax (Earnings and Pensions) Act 2003 deems agency workers to be taxable as employees of those agencies and that HMRC should have collected tax from agencies at the time; criticises HMRC transferring the liability to individuals despite its own failures; observes that HMRC is pursuing open enquiries for schemes before 2011 despite the Morse Review; also notes that HMRC is seeking additional payments from those who settled; further believes that the Morse Review was limited and not genuinely independent of HM Treasury and HMRC; highlights the resolution proposed by tax professionals; calls on the Government to work with all parties to find a fair resolution and for a full independent investigation, including into the conduct of HMRC; and believes that taxpayer rights must be enshrined in law and enquiries closed after four years if HMRC fails to act.

Before we start the debate, on behalf of my party, I pass on our condolences to the family of Tony Lloyd. He served for a short time as the shadow Minister for Northern Ireland. I always found him to be very courteous and well informed, and he wanted to be well informed. He asked the right questions and was always prepared to engage, even though he often did not agree with some of the stands we took. He was always happy to engage with all the parties in Northern Ireland, and we pass on our condolences to his family.

[Madam Deputy Speaker (Dame Rosie Winterton)]

Order. I am slightly concerned that there is something wrong with the sound. Let us start again.

[Sammy Wilson]

Thank you, Madam Deputy Speaker. I hope that the point I was making about Tony Lloyd was picked up. I want to pass on the condolences of our party to his family, and I pay tribute to the work he did as shadow Minister for Northern Ireland.

I thank the Backbench Business Committee for granting the debate. It is a timely debate and I know that the many thousands of people across the United Kingdom who have been affected by the loan charge in a very detrimental way will be glad that it is being considered in this House. Over the past two weeks, we have been looking at the dramatic fallout of the Horizon scandal at the Post Office and, quite rightly, we have been focusing on what belatedly can be done to repay and to deal with that great injustice. I say to the House—I do not think that I am being overdramatic when I say this—that we are looking at another Horizon scandal, and the parallels are frightening.

First, because of the actions of a Government Department, 10 people in the United Kingdom have committed suicide and many others have attempted to take their own lives because of the pressure they were put under by officials and by statute passed by this Parliament. We have heard time and again in evidence to the loan charge and taxpayer fairness all-party parliamentary group of the disruption and disaster this has caused in many families.

Secondly, despite the fact that alarm bells should be ringing in the Treasury, no action has been taken. Indeed, some Ministers have even refused to meet the group. Others have simply put out the party line and regurgitated the excuses of His Majesty’s Revenue and Customs for what is happening.

[Sammy Wilson]

That is a point I want to come to.

We are seeing that once again Ministers are turning a blind eye, and these lessons should be learned. Apart from two examples of Ministers that I can think of, one of whom—a former Minister—is present, Ministers turned a blind eye for years. We then had the result, but it was not until an ITV programme brought this matter to the nation as a whole that action was taken.

We have had attempts by HMRC to justify what it has been doing. In the past, postmasters and postmistresses who had unblemished records for years were accused of being thieves. We are now being told that the people who HMRC is chasing today are—to use its words—“serial tax evaders”. Minister, I have to say that when I read the letter that you—

[Madam Deputy Speaker]

Order. The right hon. Gentleman knows that he does not address the Minister directly, but through the Chair.

[Sammy Wilson]

When I read the letter that the Minister sent to the joint chairs of the all-party group, he started by once again reminding us that

“As you are aware, disguised remuneration schemes are contrived tax avoidance arrangements that seek to avoid Income Tax and National Insurance contributions”.

It is almost like a warning: “Don’t be taking up these cases, because these are bad people that you are talking about.” That is exactly parallel to what we found with the Horizon scandal.

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[Sammy Wilson]

That brings me to the very last point— I promise it is my last, Madam Deputy Speaker. I will simply list the points and other people can take them up and expand them later on. There are a number of issues the Minister must consider. First, while I have no evidence of this, we have been told that HMRC officials, just as Post Office officials were, are on commission for the money that they bring in through the loan charge. The Minister must confirm whether that is the case, because if so, it would act as a huge incentive for them to pursue individuals relentlessly.

Secondly, I trust that the Minister, in his new position, will challenge the Department’s lines on this matter. We need a greater challenge than we have had so far. Thirdly, I believe that the loan charge needs to be repealed because it is not fit for purpose and is having a detrimental effect. Fourthly, the employers and promoters must be pursued. Under the law, they were responsible for collecting tax from the employees. That is the basis on which tax demands are now being made of people—that they were employees, not self-employed.

Fifthly, of course we recognise that the Government have to collect tax when it is due, but the current method of pursuing this will not bring in tax revenue because people are going bankrupt. A group of professionals has proposed that the Government could claim back an affordable proportion of the tax that is owed. They would get at least some tax revenue out of it while stopping this relentless pursuit of individuals. In the longer run, I think we need a Bill of rights for taxpayers, and for tax fairness to be built into legislation, but that is a matter for a longer debate.

There are people who are suffering today because they are being battered by the cosh that HMRC officials are using on them to extract money that they do not have and which many of them do not believe they owe. I ask the Minister to grasp this nettle and ensure that we do not have another Horizon scandal.

[Madam Deputy Speaker (Dame Rosie Winterton)]

As colleagues can see, this is a very well-subscribed debate, with another debate to follow. In order to give equal time to Back Benchers throughout the afternoon, my advice—I would rather not put a time limit on—is that colleagues stick to about seven minutes. I am sure that Greg Smith will lead the way.

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[Several hon. Members rose—]

[Madam Deputy Speaker (Dame Rosie Winterton)]

Order. Because some colleagues have taken slightly less than seven minutes, I have a bit of leeway. I do not want speeches to be extended massively, but if colleagues wish to speak for perhaps a couple of minutes more than seven, I would be content with that.

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[Wera Hobhouse (Bath) (LD)]

What I am going to say will echo what has already been said this afternoon, but I want to add my voice to those of all Members, and particularly to those of my constituents, because Bath constituents have been affected, and I want to help them as much as I can.

The loan charge has destroyed lives. Of course businesses and individuals should pay their fair share in tax; however, much damage has been done to people who acted in good faith. They have been punished in an entirely inappropriate way, while those who were behind the schemes have got away scot-free. We must defend individual taxpayers, even if we think that they might have been ill advised in the first place. As we have heard, many were forced into the schemes and did not have a choice.

The Morse review concluded that the loan charge was not an appropriate or fair response to the use of payroll loan arrangements. It focuses on loans made many years ago. They were not taxable under the law as it was understood at the time, and HMRC did not act against them. As enacted, the loan charge means that income tax must be paid as if the outstanding amount were part of the income taxed in the current tax year. That does not account for changed financial circumstances, which is particularly relevant for freelancers. Those taxpayers pay much more than they would have if they had paid tax on the loan at the time.

The loan charge’s stated aim is to end tax avoidance schemes, which is understandable. We all want to ensure that people pay their share; however, the central injustice is that HMRC has pursued only the users of the schemes, who acted in good faith, instead of those who recommended, promoted and operated them. As a result, the loan charge is not even a deterrent. There has never been a conviction of those promoting loan schemes that are now subject to the charge. The people who were compliant and disclosed information on their tax returns have been hit the hardest. Nearly all respondents to a survey by the loan charge and taxpayer fairness APPG reported that the risks of payroll loan arrangements were not explained to them. Now some face tax bills as high as £400,000.

Families have broken down, and there have been suicides. People were made to feel like criminals, despite having entered into the arrangements following professional advice. Many have said that as contractors they had little or no choice but to enter the schemes. Many small and medium-sized company owners and directors were also impacted after following professional tax advice. Their staff now face redundancy. As well as the awful mental health impacts, which the hon. Member for Strangford (Jim Shannon) mentioned, tax bills of hundreds of thousands of pounds leave some with no option but to go bankrupt. In many cases, being declared bankrupt will prevent people from working again or paying tax.

None of that would have happened had HMRC identified the issue earlier, publicised the risks of payroll loan schemes and penalised those behind them. The nightmare now unfolding has echoes of the Post Office scandal, where individuals with no intent of wrongdoing were left with impossible choices. Livelihoods and lives are being destroyed while those running the schemes, who knew what they were up to, are getting away with it. In addition, Government bodies are magnifying the injustice, pursuing people with intimidation and making them fearful. We should put that right, rather than making this wrong even more wrong.

We urgently need a genuinely independent review of the whole loan charge, and a fair and final resolution for all. It is clear there is huge cross-party interest. It is in everyone’s interest to finally resolve this, not just for those facing overwhelming tax bills but for HMRC and the Government. The loan charge has not even achieved its intention. Instead, it represents a policy failure that has left thousands suffering. It is for all of us to act, and act quickly.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call the spokesperson for the Scottish National party.

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[Sammy Wilson]

Does the Minister accept that HMRC officials helped to service the Morse review, and restricted its grounds and parameters? The original of that review has not been disclosed, and we do not know how it was changed in the meantime. There are great doubts about whether or not the Morse review was ever an independent review, and ever came to conclusions that would have dealt with the issues and the unfairness we have been discussing today.

[Madam Deputy Speaker (Dame Rosie Winterton)]

Before the Minister replies, I do want to say that I have given him more time than would normally be allocated for a Backbench Business debate. Several colleagues have tried to intervene, but do be aware that we have another important debate to follow. I am sure the Minister will be cognisant of that fact.

[Nigel Huddleston]

I thank you for that guidance, Madam Deputy Speaker. I will try to proceed through the comments, because I am keen to make a few more points.

The Morse review followed the normal process for such reviews, in terms of the secretariat and support being provided by Government Departments. I have heard the comments made today, but I do not believe a case has been made for another review. I always stand ready to listen, but I think that review stood up quite well. I do not think anybody has impugned the integrity of Lord Morse today, but that review was thorough and significant, and 19 of the recommended changes were implemented. It was a hugely impactful and very thorough review.

Many hon. Members have also made points about tackling promoters, and some individuals facing the loan charge feel rightly aggrieved at the promoters and enablers who facilitated the use of these schemes. Promoters of tax avoidance schemes are parasites on the tax system—let us be in no doubt about that. They cause untold misery to the people they tempt into using those schemes, which almost never deliver the tax savings that were promised. The Government have prioritised tackling promoters of tax avoidance schemes and have given HMRC additional powers to do so, as a result of which many promoters have stopped promoting those types of scheme. One individual involved in the promotion of schemes subject to the loan charge has already been convicted, and others are currently under criminal investigation for offences linked to the loan charge.

Through Finance Acts in 2021 and 2022, the Government also introduced powers that allow HMRC to take action more quickly against promoters. Those include the power to publish details of promoters of tax avoidance schemes and others involved in the implementation of such schemes. In 2022, for example, HMRC issued a penalty of £1 million to a promoter of disguised remuneration schemes, and provisions included in the Finance Bill currently progressing through this House will make it a criminal offence to promote tax avoidance schemes after HMRC has issued a stop notice under the promoters of tax avoidance schemes rules. I am very pleased to say that those measures are receiving support from all parties.

The Government also consulted last summer on measures to address non-compliance in the umbrella company market—again, many hon. Members have commented on that market today—including tackling the types of schemes we have discussed. We will respond to that consultation in due course, but I can let hon. Members know that I and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), the Minister for small business at the Department for Business and Trade, are already discussing what the next steps should be. In the meantime, HMRC will continue to use its full range of civil and criminal powers to disrupt the operations of promoters.

[Nigel Huddleston]

Very briefly, and for the last time.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I really am getting anxious—we do need to move on very quickly. I call Neale Hanvey, if he can be brief.

[Neale Hanvey]

I will be very brief, Madam Deputy Speaker. One of the key problems we have is the inflationary costs that are added to the loan charges. Will the Minister at least commit to look at those costs that are added on to the taxable sums?

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[Nigel Huddleston]

The hon. Member will be aware that I cannot pre-empt the conclusions of the consultation or our response to it, but I hear his point.

Many Members have raised the personal and emotional impact of the loan charge on their constituents. This is something that I, the Government and HMRC do take very seriously. We recognise the distress that loan scheme users may feel when faced with large tax bills on their earnings, often many years after the event, which the scheme promoters wrongly told them they would be able to avoid. We are aware that some people who faced the loan charge have, very sadly, taken their own lives or harmed themselves. HMRC has made 10 referrals to the Independent Office for Police Conduct where a person has taken their own life, and following each referral, HMRC has conducted an internal investigation. Nine of the 10 investigations have concluded, and although no misconduct was found, HMRC is taking forward organisational learning from these matters to further strengthen the support provided in identifying individuals who need extra help. I completely understand the points raised by hon. Members and, indeed, I have myself heard about the emotional distress from individuals impacted by the loan charge. Colleagues have also commented on the nature and tone of interactions with HMRC in the past. Again, I have raised this with HMRC officials, and I will continue to make the point that they should adopt a more understanding tone.

Other points of clarification were raised by hon. Members, and I will endeavour to write to them because there were a few factual inaccuracies. For example, there is an appeals process—it is very important to make that point—and this is not an area in which criminal convictions are acted against the individuals. I will write to hon. Members because there is a lot to debate in this area, but it is very important to make sure that we do not scare people. For example, we must make it clear that there is an appeal process, and there is of course no cost for the appeal process. There are also other matters that I would like to make hon. Members aware of.

I am aware of the timing, Madam Deputy Speaker, and thank you very much for your patience during what has obviously been a very emotive debate today. Finally, I make an appeal. I would encourage those who still have disguised remuneration or loan charge liabilities to engage with HMRC. Thousands of people are still not engaging with it and are therefore not able to seek clarity or the support and guidance available, including emotional support, help from the Samaritans and other measures that HMRC has in place to identify and support vulnerable individuals. I repeat my thanks to hon. Members for their engagement, and I welcome continued engagement, including with the APPG and all MPs who have raised this topic with me on behalf of their constituents.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call Sammy Wilson, who has one minute to wind up.