Loan Charge

Duncan Baker Excerpts

Thursday 18th January 2024 Commons Chamber

[Duncan Baker (North Norfolk) (Con)]

It has been referred to many times this afternoon, but the number of times in the last few weeks that I have spoken here about the Post Office scandal is well known, and it has rightly dominated our headlines. However, the question that we have probably not addressed enough is “Why?” There are clearly parallels between why we have addressed the Post Office scandal and the reason for the encouraging speeches we have heard this afternoon. If there is one thing that the British people hate more than anything else it is injustice, and it is the injustice of the loan charge scandal that makes it so important. The stark reality is that the people who were affected by it have had their lives ruined at just the same levels, in terms of financial as well as personal and family impacts, as those affected by the Post Office scandal.

I have been a member of the loan charge APPG since I was elected and have spoken about it in the House. When the APPG ran sessions, back when I was first elected, I heard harrowing accounts of people who are innocently caught up in this situation, including some of my constituents. My constituent Peter Phillips fell into a loan scheme on the advice of tax professionals, as a means to be clear of and compliant with IR35—you could not make it up. There was never any intent to avoid tax: it was simply a means to keep up the income and standard of living that his work as a contractor afforded him.

I have got to know Peter over the four years since my election. There was a time when I probably did not wake up in the morning without an email from Peter—he is watching this debate, too. He is a good, decent, kind and law-abiding man, like so many of the constituents we have spoken about this afternoon. If he had been aware of HMRC’s view on these schemes, he would never have chosen that route, but it was never made plain to him, either by the tax professionals or by HMRC. In addition, he knew many other contractors who had been working through loan schemes for many years without any issues with HMRC.

Peter has settled his scheme with HMRC and, quite rightly, he is utterly aggrieved by the unfairness that, because he told HMRC of what he had done, he became an easy target, whereas the others, who did not tell HMRC, are getting away with it, so to speak. That is grossly unfair and unjust.

In the loan charge scenario, HMRC is treating the loans as both income and loans to the individual’s estate, and is therefore forcing Peter to pay income tax and inheritance tax on the amounts. We have been talking about this issue for a while, and many of the victims are older. As they get older, they are thinking about planning for their family, so these issues become even more of a worry and even more pertinent.

I do not think he should, but Peter is prepared to accept that he made an error of judgment. Of course, he did not make an error of judgment. In my view, this is retrospective penalisation by HMRC. At the very least, HMRC is equally at fault in the well-known retrospective penalties that it imposes. It seems wrong that Peter is paying a penalty for his honesty in disclosing the scheme. If Peter understands that he has to accept some responsibility, why is HMRC not doing the same and, at the very least, offering better settlement terms to all those affected?

Again, the parallel with the Post Office scandal is that many loan charge victims are not believed. These were complex tax arrangements in many cases, and they were simply mis-sold to people. The individuals who took out these arrangements are not tax professionals. They just went along with what they were told and, as we have heard, they have been financially crippled, way beyond any sensible, proportionate rationale. They need help.

I agree with other Members who said we have an opportunity to put this right. At the very least, these individuals could be better supported in three ways. For a start, the loans should be exempt from IHT. Where victims are subject to accelerated payment notices, which occur when HMRC thinks it has detected a tax avoidance scheme—the disputed tax is paid to HMRC—why is proper discretion not applied to the circumstances? Minister, go back and look at the cases and help the victims.

Finally, we should scrap or, at the very least, extend the residual tax waiver, which has been thoroughly unjust time and again. Remember, if a person did not settle before 30 September, HMRC applied the penal loan charge and calculated the settlement, giving a higher figure. That, again, has disadvantaged many, many people.

We took decisive action last week, and many applauded us for that. Were the extent of the loan charge exposed, I think there would be a willingness in society to act. Something should be done, and it can be done. Remember that so many people are innocently caught up in this scandal. It has huge parallels with the Post Office scandal, and it should be put right.