Loan Charge

Ashley Dalton Excerpts

Thursday 18th January 2024 Commons Chamber

[Sammy Wilson]

I am glad the hon. Gentleman agrees with everything I have said today. I think he has even dressed to show that agreement, with his red, white and blue outfit, and I appreciate that very much. Maybe he has become a Unionist as well—even for a day, that would be something of a miracle.

Let us look at the role of HMRC and the approach it has taken. It has been rightly pointed out that there should have been much more supervision within HMRC of what was going on. HMRC is now saying that it believes that many of the people who used payroll loan schemes should have been paying pay-as-you-earn, but at the time HMRC was not challenging the schemes, and the promoters were able to say they were legitimate. For years, people were acting in the belief that they were legitimate and were no risk. And here is the ultimate irony: HMRC employed people on contracts to do work for it, knowing that those people were being paid in that way, and never challenged it. That being the case, we have to ask what the level of supervision was, or whether HMRC changed its mind and then, having done so, decided to go after the individuals who had undertaken those schemes.

Some people will argue, “Well, it’s their own fault. After all, they knew that when they went into one of these schemes their tax liability may have been reduced. If people did that, they took that risk.” The fact is that many people did not volunteer to go into those schemes. Many people were forced into them. Some people were put into those schemes and did not even know they were in them. As far as they were concerned, they were employed by a contractor and their tax was being deducted, and they only found out later on that that was not the case.

By the way, this was not rich people employing fancy accountants to tell them how to avoid their tax. Many of the people caught up in the schemes were ordinary workers—nurses, teachers, cleaners—and some were people who wanted to set up a company and, because of the flaws in IR35, this was the only way of dealing with their tax affairs. People did not always volunteer to go into the schemes. One of the ways we discovered that HMRC was involved in this was that one lady came to us and said, “I was employed by an IT consultancy, the contractor was working for HMRC and the only way I could get the job was to be paid through one of these schemes. I did not particularly want to, but I wanted the work, so I had to enter into the scheme.”

HMRC, apparently, was quite happy for that contractor to pay its workers in that manner. In many cases, if people wanted to work, they were forced into these kinds of schemes. For years, although it was quite clear that there was an employer-employee relationship and they were under the direction and supervision of a company, they were treated as if they were separate stand-alone employees or individual self-employed people who could pay tax in that way.

The result was, of course, that when it was decided that the schemes were not tax compliant and there were years and years of back tax, Ministers were persuaded to introduce the loan charge in the Finance Act 2017. It was very convenient for HMRC to have that arrangement in place, because using the loan charge enabled it to decide what tax an individual was liable for and people could not challenge it in the normal way tax disputes can be dealt with, through either tribunals or courts. That was ruled out for them. In many instances, HMRC did not even have to explain how the tax bill was reached. If people do not have any redress to a court or tribunal, they really have no chance of negotiating whether or not the tax they have been deemed liable for is a liability and a correct liability.

Added to that was the fact that many employers saw the schemes as an advantage, because they could employ people without paying employment taxes or having to deal with pensions or holiday pay. That is why many employers forced individuals to be paid in that way. Those who argue, “Look, these people tried to avoid paying tax, so slap it up them now, they have reaped the consequences and they should just grin and bear it.”. should bear in mind that thousands of people are affected by this because they were impotent to stop that method of payment being used and were told by the promoters that it was all compliant and that there was no risk. In fact, 93% of those in the schemes were assured there was no risk and that they were compliant.

Indeed, they probably were compliant until, in later years, HMRC decided they were not compliant. People were left with tax investigations going back to 2010, which have resulted in many of them finding it impossible to pay. I want to mention a couple of case studies, because the confusion in HMRC made it very difficult for people to settle. HMRC did not seem to have the capacity to tell people. In one particular case, an individual was told after six years, “You owe £91,000.” He wanted to settle rather than be put in the loan charge. He was told, despite the fact that that was not in the criteria, “We don’t believe you can afford to pay £91,000 on the terms you have given.” So no settlement was granted and he was put in the loan charge, and the man who could not afford to pay £91,000 was then hit with a bill of £124,000. He could not afford to pay £91,000 in a settlement, but he was pushed into a loan charge where he had to pay £124,000.

We have the back charges, tax years that people thought were closed have been reopened, the confusion and some people now have to pay more in tax than they actually earned. HMRC does estimates; I think one person was told, when an explanation was sought of why they owed so much, that it was because everybody else paid that amount—and of course there is no redress.

[Ashley Dalton (West Lancashire) (Lab)]

I congratulate the right hon. Gentleman on bringing such an important debate to the Chamber. I have been contacted by several constituents who have described themselves as victims of this situation. Does he agree that those people who are being asked to pay what my constituents describe as incomprehensible amounts of money, while their employers and the people who provided those schemes are not being pursued for one penny, are victims, but are assumed to be criminals? Does he agree that they must be treated as victims and that this must be covered by a truly independent inquiry?

[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.