Loan charge victims are not 'city slickers', MP claims amid 'justice' call

Speaking in a Commons debate on the saga today (Thursday), the Haltemprice and Howden Conservative - who has been a strident campaigner in the case - said it was an issue of “natural justice”.

The loan charge is an anti-avoidance measure introduced in the 2016 Budget to address tax loss from what the Treasury called a variety of "disguised remuneration" schemes.

Under such schemes, individuals - often freelancers or self-employed contractors - were paid via a third party in the form of loans, replacing part or all of their salary.

Due to loans not incurring income tax, the Government decided that those entering into such schemes, which dated back to 1999, had been skirting their tax payments and demanded income tax to be paid on the full amounts received over that duration of time.

There have been at least seven suicides which are linked to the schemes and campaigners say lives have been ruined by demands to pay up to 20 years worth of tax in a single year.

Today Mr Davis outlined how many court cases had been unable to decipher the rules surrounding the schemes, and said: “So if the judges can’t understand it, what chance ordinary layman? People who cannot afford to employ an accountant.

“We're not talking about city slickers here or international bankers, we're talking about locum nurses, social workers, care workers and hospital cleaners.”

Last December, the Government accepted a number of recommendations in a report by senior auditor Sir Amyas Morse and agreed to reduce the tax bill of 30,000 people caught up in the loan charge.

Sir Amyas' report said HMRC should only chase tax repayments from those involved in the scheme up to 2010 - a roll-back of 11 years from the initial 1999 cut-off that the Treasury has accepted.

But MPs urged further actions as they believed the law on the loan charge was not settled until 2017.

Thirsk and Malton MP Kevin Hollinrake asked Mr Davis whether those stung by schemes should not have known that “if something looks too good to be true, it usually is”.

He said: “In my business, we have been brought these kinds of schemes over the last 30 years a number of times by our advisors, maybe with a barristers letter to say ‘don't worry, it'll all be fine, you can reduce your tax bill hugely by adopting this scheme’.

“We always rejected them because we knew the risk was there. There is a requirement on the individual who subscribes to one of these schemes to make sure they understand the risks.”

But Mr Davis said Mr Hollinrake was a “skilled businessman” who “knows what he is doing” in tax matters.

He said: “If you can say that about a locum nurse or a social worker, I am not so sure.”

And added: “I take the view that the principle of a taxpayers’ responsibility for their own tax affairs must be upheld. That's the point, I think, that my honourable friend is making precisely. Well, that's true.

“That's true, but only when the law is clear, which means the Government itself has a responsibility.”

He said instead of chasing individuals HMRC should instead be going after the advisers who pushed the schemes.

Mr Davis said: “These people are now suffering because of a history of poorly drafted regulation and legislation and poor management at HMRC targeted on the wrong people.”

Financial Secretary to the Treasury Jesse Norman said: “I want to put on record again that I and my colleagues recognise the strength of feelings involved, as I've said, and very much sympathise with those who may be subject to the charge.”

But he said the schemes discussed were “contrived tax avoidance in which people were paid in the form of loans with no interest and no intention or requirement to pay the loan back”.

He said: “The point is, it has cost the Exchequer hundreds of millions of pounds a year, and that, of course has two effects. It deprives public services of the money they need to operate, and it forces other taxpayers to pay more in order to make up the shortfall. Now the purpose of the loan charge was to combat this form of abusive tax avoidance. “

He said the Government had published a policy paper on tackling the promoters of the schemes, and a call for evidence on how to raise standards in tax advice.

But he argued the loan charge was not retrospective.

He said: “It was introduced as a new measure in 2017. It taxes a loan outstanding at a future date, it does not change any law previously on the statute book.”

And added: “If one asks the average man or woman in this country, I think they would say everyone should pay their fair share of taxes. People are responsible for their own tax affairs, real loans get repaid. And if someone offered you a loan, where no repayment, no tax, and no interest was due, it was probably too good to be true.

”And so it was."