Loan Charge: HMRC Grilled By Lords Economic Committee

Yesterday, HMRC’s Chief Executive Jim Harra was grilled by the House of Lords Economic Affairs Committee during a public evidence session relating to the Loan Charge, a policy which retrospectively charges individuals tax and NICs going back 10 years.  The thousands of affected individuals are being pursued for lifechanging amounts of money, usually 6-figure sums, and many are facing bankruptcy.

The loan charge policy was controversial from the outset and the House of Lords has previously attempted to hold HMRC to account in previous evidence sessions.  This latest session (which you can watch here) was robust and focussed on many of the injustices relating to the loan charge policy.

Legal basis for the Loan Charge?

We have previously reported on the Freedom of Information request which revealed an email in which Jim Harra states “in recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim with very little success”  This suggests that there is no sound legal basis for HMRC’s loan charge policy, and during yesterday’s evidence session Harra said his email has been overstated by campaigners – a very weak argument that does not dispute the facts of the email as written.

Elephant in the room?

Harra was also questioned about another FOI which revealed the phrase “elephant in the room” being used in an internal email from Harra in relation to HMRC’s engagement of contractors who were using loan arrangements.  Surprisingly, Harra yesterday denied all knowledge of the phrase, stating categorically that he did not recognise it – despite previously refusing to disclose what exactly was the “elephant in the room” when responding to a FOI request from the Loan Charge Action Group.  Again, not a credible response from HMRC’s CEO, and the Lords have requested that Harra report back to them on the “elephant” at a later date.

Increase in “umbrella” schemes?

There was some questioning in relation to the off-payroll legislation effectively encouraging the proliferation of schemes, and what protections are in place to protect innocent workers becoming embroiled in something that brings them a huge tax bill in future.  An example was given of a social worker who is told her job has disappeared but she can come back as a contractor, and then many years later she receives an enormous tax bill.  Harra’s response basically asserted that HMRC was not responsible for people becoming involved in loan schemes, and in relation to the increase in schemes Harra restated that these will fall within the remit of Single Enforcement Body – yet to be established.

What next?

The 90 minute grilling by the Lords was robust and HMRC did not come out of it well.  There were no satisfactory answers to questions and the basis of the loan charge remains questionable at best.  It is likely that the Lords will keep up the pressure and continue holding HMRC to account by further scrutinising their loan charge policy and actions.  Whilst the Lords have limited power to act in practical terms, they can do much to raise the profile of issues which is essential for change to be achieved.

In particular change is needed on two main points: firstly HMRC must be seen to take action against scheme promoters; they claim they always do but there is no public evidence of this so no deterrent to new schemes being set up.  HMRC should be required to provide evidence of pursuing promoters and the Lords Economic Committee is unlikely to drop this point.

Also, it is clear that the Lords believe the umbrella sector is problematic and there is mounting pressure on the government to act to protect workers from being duped into schemes.  However, despite HMRC and the wider government being well aware of issues within the umbrella sector for many years, there continues to be a reluctance to do anything in practical terms pending the formation of the Single Enforcement Body.

In other words, don’t expect any changes for at least a few years, and in the meantime scheme promoters can continue posing as umbrellas unchecked.  It is truly astonishing that the government’s policy appears to knowingly allow more people to become victim to schemes and potentially face bankruptcy further down the line.


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