Chancellor must halt 'cruel and dangerous' action by HMRC, say MPs opposed to loan charge

The loan charge was designed to tackle tax avoidance schemes where individuals receive income in the form of loans that are not repaid to avoid income tax. The Government has said that “significant changes” were made to the loan charge following Lord Morse's independent review in 2019 which reduced its impact. However, the MPs have written to the Chancellor about HMRC’s use of Section 684 notices to pursue people who had previously faced the loan charge, but were taken out of its reach by one of the key recommendations of the Morse review.

The letter states: “We are deeply troubled about this latest tactic from HMRC which again is an attack on victims of mis-selling and another attempt to conceal their own abject failures to target employers at the time.

"As with the loan charge, this is retrospective action by HMRC going back 14 years or more and undermining the basic framework of the tax system. It once again disregards key rights and protections of taxpayers of how far back HMRC may go to demand bills for disputed tax (including for years well beyond the seven year limit people have to keep their records).”

HMRC has started issuing these s.684 notices informing the individual that the tax liability, which fell on the deemed employer, has now been transferred to them instead, making them liable for the tax that should have been paid by that employer, the letter states.

It added: “Freedom of Information requests show that HMRC have already issued nearly 3,000 of these s.684 notices. These notices cannot be appealed and individuals receiving them only have 30 days in which to seek to challenge the transfer of liability (which is a technical matter, for which professional advice is needed) or the transfer automatically happens and the employer’s tax liability, which is likely to be a life-changing amount, is transferred to them and tax demands will then follow. Even if the individual does challenge the notice, the only way they can then overturn it is via Judicial Review, which is neither realistic nor affordable (and would have to be brought within three months).”

The APPG has long argued that the loan charge is draconian and should be repealed. It also believes that there should be a resolution “to end the nightmare for the tens of thousands of people affected”.

The letter added: "Instead, HMRC is now causing a new crisis for those who thought that the loan charge no longer applied. It is cruel and dangerous, but also will not resolve the situation for those affected or for HMRC. The resolution to this nightmare is for the Government to order HMRC to take a reasonable and sensible approach, along the lines of the resolution proposed by independent tax sector professionals.”

An HMRC spokesperson said: “Lord Morse recommended we use our normal powers to investigate and settle cases taken out of the Loan Charge. This is exactly what we’ve done but only where there are appropriate grounds and a legal basis to do so. HMRC noted the use of these powers in the evidence it provided to Lord Morse’s Review.”

“We appreciate there’s a human story behind every tax bill and we take the wellbeing of all taxpayers seriously.

“We recognise dealing with large tax liabilities can lead to pressure on individuals and we are committed to supporting customers who need extra help with their tax liabilities. We have made significant improvements to this service over the last few years.

“Our message to anyone who is worried about paying what they owe is: please contact us as soon as possible to talk about your options.”

In response to the MPs’ letter, a HMRC spokesman stressed that the loan charge does not apply to DR (disguised remuneration) loans before December 9 2010, “however tax is still due on the use of an avoidance scheme when we have protected our position within the statutory limits. “We have a duty to collect that tax. Customers with pre-9 December 2010 unsettled DR use, need to settle their tax affairs in line with the normal processes. They are in the same position as they would have been if the Loan Charge had not been introduced.”

“Lord Morse in his Independent Loan Charge Review said: “HMRC should continue being able to settle and investigate cases prior to this point [9 December 2010] under their normal powers where they have appropriate grounds, and a legal basis, to do so”. HMRC is acting exactly in line with this recommendation.”