TaxDec 4 2019

Warning sounded as loan charge victims asked to waive rights

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Warning sounded as loan charge victims asked to waive rights

The loan charge has been levied since the start of this tax year on those who benefitted from disguised remuneration schemes, used to pay employees via third party companies which "loaned" the money to the worker. 

The loans were never intended to be repaid so HMRC treated them as tax avoidance, but campaigners have argued many employees agreed to the schemes only after seeking expert advice. 

The introduction of the loan charge, which is an extra fee on top of the tax owed, was announced in the 2016 Budget and confirmed in the 2017 Finance Bill.

The unpopular policy has left many with significant tax bills and has led to widespread criticism from MPs, professional bodies and protestors. 

HMRC is in the process of agreeing voluntary settlements with some loan charge victims to pay back the tax owed from the schemes, but certain clauses in these agreements have raised cause for concern amongst campaigners. 

In particular, taxpayers signing the contracts agreed not to take “any action with a view to obtaining repayments from HMRC of any part of the settlement amount”, including but “not limited to” making a claim under common law.

The contract also requires taxpayers to refrain from making a claim against HMRC under the clause in the Taxes Management Act 1970 which relates to recovery of overpaid tax. 

Concerns have been raised this is effectively asking taxpayers to "sign away" legal rights in the event the law should change or HMRC were to lose a case in the future. 

Concerns have also been raised that the wording of HMRC's settlement contract jeopardises a taxpayer's right to challenge the retrospective tax bill should a review, or a future government, find the taxman's actions were unlawful. 

When approached by FTAdviser HMRC maintained the clause did not "sign away" all the taxpayer’s legal rights and they would still have rights under the terms of the agreement. 

In October prime minister Boris Johnson confirmed his backing of a ‘thorough’ review of the loan charge following mounting pressure from MPs and campaigners and after chancellor Sajid Javid commissioned a review in September.

In its election manifesto published last month the Liberal Democrat party went a step further and pledged to end retrospective tax changes such as the loan charge so that individuals and firms are "treated fairly".

FTAdviser understands HMRC has told taxpayers currently in the settlement process they are entitled to pause it whilst the government’s review into the loan charge is ongoing. 

Steve Packham, spokesperson for the Loan Charge Action Group, said: "One of the most shocking things about the draconian loan charge legislation is that not only does it take away a citizen’s right to challenge the state over a disputed retrospective tax bill, but the so-called voluntary settlement process actually involves signing away any future right to legal redress, should the law change.

"MPs have rightly identified that the loan charge undermines the rule of law, but it is even more sinister that what is presented as a ‘voluntary process’ involves being forced to accepting guilt and signing away the basic right to challenge a bad law. 

"This is chilling in a democracy and must be changed."

Andrew Robins, partner at RSM UK Tax and Accounting, said the clause was a concern for those who had already settled an amount with HMRC, as it would be "very difficult" to reverse this position. 

Mr Robins said: "The settlement with HMRC is a contract settlement - so the idea is it binds both sides to the contract regardless of what happens later. 

"This is standard wording and when you enter into a contract settlement the thing which is favourable to the taxpayer is HMRC can’t come back later and ask for more money.

"But the flip side is the exact opposite, because if the law changes or HMRC decides it got it wrong and the taxpayer did not owe money then nothing can be done as it is under contract."  

Mr Robins warned that without specific legislation which accompanied any repeal of the loan charge, it would be difficult to reverse this clause. 

He said: "There is a real risk of unfairness if legislation is passed to remove the loan charge but not specific legislation to cancel the contracts of the settlements - we will end up with a large group of taxpayers who tried to do the right thing and ended up suffering compared to those who waited and hoped the issue would be resolved." 

Mr Robins added: "HMRC has been very pragmatic about it and recognised there will be people in discussion to settle whilst the review is happening.

"Whilst HMRC has been reasonable and said offered to pause the settlement, this doesn't help anyone who has already completed the process - and there was a lot of statutory pressure and time limits to encourage people to settle many months ago."

In May HMRC confirmed it had already collected £1bn from the loan charge, with the majority collected from employers.

Last month MPs warned the attitude of HMRC towards the loan charge was "wreaking havoc" on taxpayers.

In a survey published by the Loan Charge All-Party Parliamentary Group in November, which interviewed more than 2,000 people believed to be facing the charge, one in six respondents were yet to receive settlement figures from the taxman detailing how much is owed. A further third claimed to have still not been formally notified of the charge by HMRC.  

rachel.mortimer@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.