Ruth Cadbury
Main Page: Ruth Cadbury (Labour - Brentford and Isleworth)
Ruth Cadbury (Brentford and Isleworth) (Lab)
As one of the vice-chairs of the all-party loan charge group, I add my thanks to members of the Loan Charge Action Group for all their work in submitting evidence to us, and particularly to those few people who have worked their socks off in recent weeks to pull together the APPG report, which was released yesterday and is available online for anybody who wants to see it. I will focus on HMRC’s communications with taxpayers that have led to many of the appalling stories that Members across this House have been relating and will relate today.
Jim Shannon (Strangford) (DUP)
I sought the hon. Lady’s permission to intervene beforehand. Many of my constituents have the same problems that everybody, including the hon. Lady, has referred to. They are asking for a six-month delay for a review of the loan charge. Does she share my real concerns about those who are purported to have committed suicide? There have been deaths, and people facing bankruptcy have had to sell their homes. The effect on people’s health is enormous.
Ruth Cadbury
Examples such as that—tragically, we heard from the family of somebody who committed suicide—have been mentioned today. The stress has been well related by Members today on behalf of their constituents.
I knew very little about this issue until I met a group of my constituents. They are normal people, if anybody is normal. They are specialists in their field and they are middle-aged, but they have had to put their lives on hold. One couple cannot get married and get a mortgage. Another are making plans for their children’s university education, and that is causing them real stress. Those who are still working are treading water. They are not investing, not employing people and not generating wealth for this country. All are profoundly anxious and depressed, and it is affecting everything about their lives.
What I have learned from the work that we have been doing in recent months is that there are, very roughly, two groups of people. The first group is professional freelancers who went into the scheme, starting up to 20 years ago. Generally, they are middle to high earners and took professional accounting advice about the options available in the post-IR35 world. This group, mainly professionals, went into loan schemes because for them, pay-as-you-earn employment was not an option and their accountants advised them that due to the regulatory complexity and disproportionate cost burden of IR35, it would be best to enter into a loan-based enumeration scheme. There was no uncertainty about the legality of the scheme back then. They made arrangements with umbrella companies to prevent them from inadvertently breaking the IR35 rules. Everyone I heard from who went into these schemes said that they did so not to save tax, but to save the administrative burden.
There is another group—an unknown number—of more recent joiners since the rules changed in 2016. They are working in public services, as nurses, doctors and social workers. The word “loan” was never mentioned to them by the scheme providers. They generally did not take separate professional accountancy advice, as they were signed up by a recruitment company that had links with the umbrella company. There appeared to be no choice, and
“everyone we worked with was doing it”.
It is possible that many of these people do not know that they are caught up in this.
Ruth Cadbury
I will if I have time.
Evidence to our inquiry shows that HMRC was aware of these promoters, yet none has been investigated and prosecuted. Why not, and why have they not been chased?
There is a 45% non-refundable charge on all loans advanced during the period unless the individual agrees to pay up front a figure calculated by HMRC—completely opaquely—and regardless of whether any such tax was legally due at the time. It is going to have to be paid and is effective from tomorrow. Anyone who has ever been employed through such a structure could face a retrospective charge in the 2018-19 tax year, which is about to close, payable by January 2020. All potential liability—it could be for many years—will be rolled up into this tax year, whether or not someone knows what their liability is, or indeed whether or not they are even aware that they have a liability. That cannot be within the spirit of natural justice.
How do the people who know about it know? Many of our inquiry respondents were notified of the loan charge in late 2018—some as late as this year. That is wholly inadequate given the life consequences of these demands. Standard letters are going out indiscriminately to any individual who might have been employed by a company that might have undertaken a disclosed tax avoidance arrangement. Letters refer to closed tax years, as the right hon. Member for Kingston and Surbiton (Sir Edward Davey) mentioned, even when the tax has been agreed and paid. Evidence shows that there is no standard format in letters and no evidence provided, even of the dates in the years being queried. By withholding this information, HMRC has failed in its duty of care to taxpayers who are unaware of their right to request disclosure. They face a greater retrospective penalty in a single year—this year—than might have otherwise been the case.
People’s belief that they were doing the right thing was partly based on a belief that the loan charge arrangements were not taxable. HMRC correspondence of 2006 stated that plans
“made by an…EBT…are not taxable under Sections 173 &174”
of the
“Income Tax (Earnings and Pensions) 2003”.
Furthermore, there is the Rangers Supreme Court case, which remains the position in law. Individuals are not liable—their employers are—yet HMRC is misinterpreting the outcome of that case. We understand that HMRC has used behaviour change specialists in pursuing the loan charge, which may explain the aggressive and opaque nature of its communications. The regular use by HMRC of a phrase asking people to “put their tax affairs right” is clearly part of this strategy of forcing people to feel, and accept, guilt for wrongdoing. That is despite the fact that the arrangements they used were entirely legal at the time. There have also been a disturbing number of reports of individual HMRC officers telling taxpayers that they should apply for mortgages or loans, but not telling the lender that the money will be used to pay a tax bill. Why? Because that is contrary to tax law, of course.
Many of the taxpayers who submitted evidence to our inquiry highlighted the stress and anxiety that they have experienced as the direct result of the language and tone of HMRC communication. Individuals who believed that they were acting within the law told us that they have been made to feel like criminals. The all-party parliamentary group on the loan charge agrees: it is wholly inappropriate for a Government department to intimidate individuals into settlements through threats and labelling.
The issue has had two consequences. One is the feeling of criminality. We heard about the family who read out the father’s suicide notes; he had kept the information from them as he was too embarrassed. He was too embarrassed even to see a tax consultant or his accountant; he could not admit that he might have done wrong. He thought he was going to prison. In that example, his liability was well within his means; he could have afforded to pay. But he was made to feel like a criminal—a man who had never done anything against the law in his life.
The other consequence is the threat to the homes and businesses of those who are likely to be made insolvent. This issue will affect their and their family’s lives now and in the future. We are talking about amounts that are often unjustified, unquantified and unexplained.
Dominic Raab (Esher and Walton) (Con)
I thank the hon. Lady, who is making an excellent speech. Does she agree that there are three fundamental elements of the injustice? There is the retrospectivity, which undermines basic principles of justice; the devastating impact on ordinary people’s lives, which she has described; and the contrast between the arbitrary approach taken to those people and the sweetheart deals for the likes of Goldman Sachs. Does she agree that the retrospectivity must be ended and that the scheme must be reviewed?
Ruth Cadbury
I absolutely agree. The scheme needs to be paused for at least six months and should be reviewed by a qualified tax judge completely independent of the Government. I am also concerned that HMRC may have been acting without direct steerage from the Treasury and Treasury Ministers. Ministers have said things to the loan charge APPG that contradict what we have been told by credible witnesses. This debate raises a number of questions for Treasury Front Benchers, and we look forward to their responses.