The Loan Charge is designed to tackle disguised remuneration (DR) tax avoidance schemes. DR schemes seek to avoid Income Tax and National Insurance contributions by paying users their income in the form of loans. The loans are provided on terms that mean they are not repaid in practice. These loans are no different to normal income and are and always have been taxable. Less than 0.2 per cent of all individual income taxpayers used one of these schemes.
It is right that individuals pay the right amount of tax. Tax avoidance deprives funding for our vital public services, such as the NHS. In my discussions with colleagues at the Treasury I have been assured that work is being done to tackle this and other forms of tax avoidance vigorously.
After concerns were raised by MPs across the House about the impact of the Loan Charge on constituents, Sir Amyas Morse, the highly respected former head of the National Audit Office, was commissioned to lead an independent review. He received evidence from a wide range of individuals affected by the Loan Charge and from stakeholders such as, the Loan Charge Action Group, the All-Party Parliamentary Loan Charge Group and specialist tax advisers.
I have read the final report, in which Sir Amyas was clear that the Loan Charge should remain in force. However, I welcome that the Government recognised concerns raised by the Review and accepted all but one of the 20 recommendations, which included removing DR loans made before 9 December 2010 from the scope of the Loan Charge and allowing taxpayers to spread their payments over three years.
I understand that HMRC have estimated that out of the 50,000 individuals who have used DR schemes, over 60 per cent or more than 30,000 of these people, will benefit from the changes, 11,000 of whom will be taken out of scope of the charge altogether.
Furthermore, I have also read some of the published exchanges between a member of the review and an employee of the Treasury, and although I do not feel this constitutes evidence that Sir Amyas’ review was somehow subject to undue influence, I do expect that my colleagues at the Treasury will look into this matter and that any appropriate internal procedures will be taken. I would add that this correspondence does not refer to the contents of the review report and simply to how press enquires about the review should be handled. I will however ensure that I convey how this has been perceived to the Treasury. Sir Amyas has himself responded to these comments, stating that: “My independent review of the Loan Charge represented my own judgement following the evidence that I heard – including over 700 individual impact statements. "My conclusions speak for themselves, and show that I was independent of government. Any suggestion that I was (or could have been) unduly influenced by the civil servants who supported me ignores that the report is my own, and my ten years of experience at the National Audit Office in holding government to account.”
Needless to say, the coronavirus outbreak has created an extraordinary situation. I have spoken with colleagues at the Treasury who assure me they are keeping the situation under close review and will take a reasonable and proportionate approach to those covered by the Loan Charge. Those who were unable to file a return by on or before 31 December 2020 will automatically have their late elections accepted by HMRC. This will enable individuals to include a third of their outstanding disguised remuneration loan balance on their 2018 to 2019 Self Assessment tax return. This date had already moved back to enable people to respond to the recommendations of the Morse Report. I hope that this commitment to fair and proportionate treatment given the situation provides some reassurance to you, but I would emphasise that if you have been affected by the COVID-19 outbreak you should make contact with HMRC to inform them as soon as possible.
Finally, it is important to note that HMRC is a government department that has an impact on the lives of everyone in the UK. It is therefore essential that HMRC constantly evaluates and updates its practices. While HMRC has offered assurances that it takes its responsibility to be open and accountable to taxpayers very seriously, there is more to be done. It is important that we scrutinise HMRC’s operations and make sure it responds to this scrutiny. Sir Amyas Morse’s independent review of the Loan Charge contained recommendations on HMRC’s practices, noting that citizens must know that their tax authority is fair and even handed. I agree with Sir Amyas’s recommendation that the Government must develop greater public trust in HMRC. With this in mind, I am pleased to see that HMRC has updated its Charter to set higher expectations of performance during interactions with members of the public while also introducing new Compliance Professional Standards seek to support and embed regular communication with taxpayers during compliance checks.