The author of an independent review into the loan charge has slammed the “reprehensible” behaviour of promoters and professional advisers who are continuing to sell loan schemes, despite knowing they will not deliver the tax benefits promised.
Sir Amyas Morse found that the tactics used by promoters included misrepresenting the DOTAS (disclosure of tax avoidance schemes) system to claim that schemes had been approved by HMRC, or providing opinions from Queen’s Counsel suggesting that HMRC would be unsuccessful if they tried to claim the tax.
In his independent review, Sir Amyas says: “The loan charge was intended to shut down loan schemes, but the review found there were more first-time users in 2017-18 (over 6,000) than in any year dating back to 1999-2000.
“Scheme usage continues to be extensive in the 2019-20 tax year to date, with over 8,000 individuals having entered into loan schemes between April and October 2019. A key driver of ongoing scheme usage is a limited number of promoters and professional advisers who are selling schemes in spite of knowing that they will not deliver the tax benefits being promised.”
The review also received “extensive evidence” that some advisers minimised the importance of HMRC opening enquiries by suggesting that this was normal. Scheme users felt confident in continuing to use the schemes though they might otherwise have chosen to stop doing so if they had realised the real implications, the review said.
The review added: “As a result of these kinds of tactics, many individuals and employers who used schemes placed significant reliance on advice of this type in determining whether schemes were legitimate.
“Taxpayers often placed significant trust in their promoter or advisers because the tax system was not their area of expertise but should have been the professional’s.
The review also heard that promoters, salespersons, and others continued to push the schemes after December 2010, typically without making the new legal position clear. This directly contradicts “respected professional opinion” that loan schemes from that point onwards were unlikely to achieve their aims of avoiding tax, the review said.
Sir Amyas’ review added: “While the review has set out its position that responsibility for tax affairs must ultimately rest with the individual, it is to be expected that people will want expert advice on their tax affairs, and will turn to professionals for that advice. The review considers that the continuing marketing of loan schemes on the basis of tax benefits associated with them, given the clear legal position, is reprehensible.”
The review added: “HMRC reported that their activity is now concentrated on the remaining promoters who are likely responsible for the majority of loan schemes presently being sold. In 2019-20, HMRC expect to double the resources involved in tackling promoters.”
The evidence from HMRC is that the typical profile of a scheme user has changed towards a higher volume of less affluent users. The marketing of loan schemes has changed to reflect this, and increasingly imitates legitimate price comparison tools. the review said.
It added: “The government must improve the market in tax advice and tackle the people who continue to promote the use of loan schemes, including by clarifying how taxpayers can challenge promoters and advisers that may be misselling loan schemes.”
On Friday, the Government said it planned to implement changes to the Loan Charge, after the review found that it caused “serious distress” to some of the people affected by it.
Sir Ed Davey MP, Liberal Democrat MP for Kingston and Surbiton, who was the chairman of the Loan Charge APPG in the previous Parliament, said: “At last we have the news that the draconian Loan Charge legislation is to be significantly amended in Parliament next year.
“This is great news and a testament to the campaigning of the Loan Charge Cross-Party Group I established, the Loan Charge Action Group and other campaigners.
“There are welcome and significant changes, yet I still believe there remain injustices which will need further changes, including the removal of all aspects of retrospection.
“I intend to re-establish the Loan Charge APPG for the new Parliament to examine these proposals in more detail in the New Year and we will seek to work constructively with the Government before and during the passage of the legislation when it comes before Parliament.”