CONSERVATIVE
New Forest East

LOAN CHARGE – 19 March 2020

Dr Julian Lewis: 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people who were bullied into making large payments relating to the years before 2010 unable to get those settlements rescinded.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.

[Sir Edward Davey: It is a pleasure to follow the right hon. Member for New Forest East (Dr Lewis). I am delighted to say that on ​this occasion I agree with every word he said. It is the nature of this debate that it has brought those on all sides together. For people who normally are not necessarily in total agreement on economic and tax affairs, this has brought us together. That is for the reason the right hon. Member for Haltemprice and Howden (Mr Davis) gave: it is about natural justice. ... ]