Loan Charge 2019: Sir Amyas Morse Review

Julian Lewis Excerpts

Thursday 19th March 2020 Commons Chamber

[Mr Davis]

I do. The hon. Lady tempts me into a political point, because the Blair Government were the most active promoter of these schemes, but she is right in general.

When something is as unclear as this tax law obviously was, we do not take the date of resolution from the first date that HMRC wins—we do not keep going until we get the answer that the Government want. We take it from the day it is finally resolved in the Supreme Court. The case was not finally and definitively settled by the Supreme Court until 2017, when it found in HMRC’s favour on the Rangers, Dextra and Sempra cases. The Government—this relates to the point made by my right hon. Friend the Member for New Forest West—then passed further legislation to clarify the law. Even after the court case, they passed legislation to clarify the law. If it was so clear, why did we need a new law in 2017? That is the fundamental point.

[Dr Julian Lewis (New Forest East) (Con)]

My right hon. Friend is making an unanswerable case in logic, but I would like to put another political point to him. The cause of tax avoidance is not normally associated with such parties as the Labour party or the Liberal Democrats, but I am sure he would acknowledge that Members from both those parties have played a leading role in trying to put this injustice right.

[Mr Davis]

My right hon. Friend is absolutely right. I started by saying that this is not a political issue; it is an issue of honour. As we would expect from our House—one of the greatest Parliaments in the world, if not the greatest—all sides take part in defending that honour.

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[Dr Julian Lewis]

Maybe the thesaurus wasn’t clear.

[Mr Davis]

Yes, I will send HMRC a copy of Microsoft’s thesaurus. Not only that, but in paragraph 3.8 of his report, Sir Amyas states:

“The Review’s legal advisers found that there was no precedent for that element of the design.”

That is the retroactive, retrospective or backward-looking element. There was no legal precedent for that design. I hope, frankly, that the Government will now stop playing with words and finally concede that this is indeed a retrospective measure—an unprecedented retrospective measure.

The only just, fair and rational resolution is to remove the retrospective nature of the loan charge and set the cut-off date when the law became clear—when the Supreme Court finally settled the matter in 2017 and when the Government felt it necessary to legislate to make clear what they meant in the first place. That is why, as I made clear, if the Government do not act to address this issue, Parliament—all of us who take this very seriously—will have to act for them and make clear that, in the future, HMRC can under no circumstances act retrospectively. If we cannot solve this, here comes a Finance Bill. I suggest that the Minister should make one simple adjustment to his plans before they are published: change December 2010 to July 2017. That would resolve the issue. It would lift enormous pressure off 50,000 of our constituents, and it would put the Government in a morally defensible, justifiable and decent position.

Tax law is the only part of English law where “innocent until proven guilty” does not apply. If HMRC tells us we owe it money, then, until we prove otherwise, we owe it money. It is therefore very important that the law is clear—that it is not subject to reinterpretation by subsequent Governments and it does not move with social mores or whatever; it is simply clear. That is what we have to do. In the interests of natural justice and the financial and mental wellbeing of thousands of our constituents, it is time for the Government to change their mind and remove this harrowing burden from the 50,000 people who have been caught by it.

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[Dr Julian Lewis (New Forest East) (Con)]

During business questions before this debate, I asked about the perennial issue of war widows whose pensions were stopped because they remarried or cohabited, and we were told in no uncertain terms that those pensions would not be reinstated retrospectively. On 6 February, I tabled a question to the Financial Secretary to the Treasury, who is present, about the apparent difference between the approach to war widows, who will not get retrospective pensions, and people who will be hit retroactively by the loan charge. I was told in the reply that the loan charge is not retrospective. We now know that the reason it is not retrospective is that it is retroactive, even if the two things are exactly the same.

I pay tribute to my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) for taking the initiative over several months to try to put this right, to the all-party parliamentary group ably led by the right hon. Member for Kingston and Surbiton (Sir Edward Davey), and to our former colleague, Greg Mulholland, who has done a great deal of background research in support.

My understanding of the situation can be summarised as follows. First, uncertainties arising from IR35 legislation led tax experts to approve umbrella company loan schemes. Secondly, many self-employed public sector workers, among others, had no idea that they were being paid by means of such loans. Thirdly, if HMRC had been doing its job properly, it would have sanctioned the purveyors of those schemes and warned the victims, as soon as they sent in their first annual returns, that they were making themselves liable for charges.

Fourthly—this is quite incredible—such schemes are still being sold to thousands of people who clearly still have no idea what is waiting for them from HMRC further down the line. Fifthly, the Morse review’s decision to exempt people affected prior to 2010 leaves people who were bullied into making large payments relating to the years before 2010 unable to get those settlements rescinded. People actually paid money before the Morse review for a period that has now been exempted, and they could probably negotiate better settlements, if any were still needed, than those for which they paid money that they cannot now get back, because they cannot reopen the negotiation.

Sixthly, people acted in good faith on the best professional advice that they could get. They should not have been left in blissful ignorance for years on end by a Government body that is now playing catch-up. Because of the time constraints, I will not go through the harrowing personal testimonies, but will stick to a couple more theoretical points and then conclude.

Seventhly, it has been pointed out that there was something called part 7A ITEPA—part 7A of the Income Tax (Earnings and Pensions) Act 2003—which came into effect in December 2010, and this has been cited as justifying the decision for the loan charge to apply from 2010 onwards. However, I am advised by Alan Williams FCA, a constituent as well as a highly qualified professional, that this does not apply to the self-employed, so the self-employed who were so often the victims of this set-up ought not to be caught by a provision—by the assumed knowledge of a provision—that did not, in any case, apply to them.

An eighth point is that the loan charge is not, in any case, full and final settlement, and therefore does not close open years. Even those paying the loan charge will see HMRC continuing to pursue further sums for so-called protected years in which loans were received. The recommendation of Mr Williams is that those accepting the loan charge should be afforded finality by making the loan charge full and final settlement.

I come to the conclusion that HMRC fell down on the job. It was asleep at the wheel. It bullied the victims, and let the villains who created these schemes get away with it. HMRC in this case is not just a bully; it is a negligent bully. The Government should know when they are beaten both morally and intellectually, stop flogging this dead horse and finally do the right thing.

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[The Financial Secretary to the Treasury (Jesse Norman)]

I congratulate my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for New Forest East (Dr Lewis) and the hon. Member for Brentford and Isleworth (Ruth Cadbury) for securing this debate today, and I thank colleagues on both sides of the House for their contributions. It is a measure of the effect they perceive on their constituents that, in these circumstances, they are here in such numbers.

The outbreak of covid-19 has created extraordinary circumstances, and it is important to say up front that the Government are keeping the situation under close review, as elsewhere, and will take a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September. That date has been moved back to give people enough time to respond to the Morse report and its recommendations, but the Government will insist that HMRC takes a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September.

Anyone who believes they may be affected by this should please contact HMRC as soon as possible. Equally, we must recognise that HMRC’s workforce may well be affected by the outbreak. Where appropriate, HMRC has made it clear that it will take steps to support anyone who has been disadvantaged by delays at its end as a result of covid-19. As the House will know, HMRC has already established a helpline to support any businesses and individuals affected. The hon. Member for Bootle (Peter Dowd) raised that issue, and I can confirm the helpline has now been in place for some time and has an expert and supportive staff behind it.

As this debate has made clear, the loan charge, and with it the wider issue of using disguised remuneration schemes to avoid tax, has been the subject of public concern and considerable controversy. Let us be clear that tax is never popular, and my colleagues and I recognise the strength of feeling and sympathise with those who may be subject to the charge. Today’s motion reflects some of the arguments and concerns expressed by colleagues that the loan charge is retrospective and unjust and that the law was not settled, it is claimed, until 2017. If I may, I will deal with each of those charges in turn.

First, however, we need to be clear what we are talking about. Disguised remuneration is a term of art—it is a fancy term—but the House should be under no illusion as to what it amounts to. Such schemes are a form of contrived tax avoidance in which people are paid in the form of a loan with no interest and no intention or requirement to pay the loan back.

[Dr Lewis]

If it were so clear and the schemes were so contrived, why did HMRC not point that out to people at an early stage, so that they would have seen what they were letting themselves become vulnerable to?

[Jesse Norman]

I thank my right hon. Friend for the question. All he needs to do is attend to the detail of the Morse report, in which Sir Amyas Morse goes through the efforts made at that time, before and after 2010, in some detail. That is the basis for the judgment that he reaches about the appropriate relief.