The professionals, comprised of tax lawyers, tax advisers and accountants, led by Sarah Gabbai of McDermott, Will and Emery, have taken action due to the increasing concern about the impact on thousands of families if HMRC enforce the Loan Charge. They have come together to offer a new voice to the debates on the issue and the possibility of resolving the impasse between HMRC and taxpayers facing the Loan Charge.
The proposal
In a letter to the Government, the group make a compelling case for a “Disguised Remuneration” (DR) settlement opportunity, as they did for the (now closed) Employee Benefit Trust Settlement Opportunity, with taxpayers paying an affordable proportion of the tax that HMRC believes is owed. There should also be an acknowledgement that HMRC failed to adequately warn taxpayers and failed to close down schemes at the time, so cannot reasonably demand all the disputed tax retrospectively.
There are four reasons why a “Disguised Remuneration” settlement opportunity would be a sensible way forward:
- Agencies should have operated PAYE – HMRC could have (and should have) used the agency provisions of section 44 ITEPA 2003 to collect the PAYE income tax that was legally due from the agencies, rather than simply resort to applying the Loan Charge in the first instance;
- DR schemes were mis-sold to taxpayers – evidence suggests mis-selling occurred on a widespread scale and the government should accept the reality that the proliferation of DR schemes was the fault of several parties other than the taxpayers to whom these schemes were sold, and the settlement opportunity should reflect that;
- Scheme users under the Eclipse Settlement Opportunity have thus far been treated more favourably than DR scheme users – HMRC granted a settlement opportunity to Eclipse scheme users who knowingly entered into a tax avoidance scheme, then surely they should do the same for DR users who unknowingly entered into a scheme;
- Lack of closure and finality with the Loan Charge – paying the Loan Charge does not resolve the underlying tax dispute, in a cruel twist which means that affected taxpayers could be subject to further demands from HMRC, even after paying lifechanging sums of the Loan Charge. Therefore any settlement opportunity must predicate full and final closure of the tax dispute.
The proposal has been presented to the Loan Charge and Taxpayer Fairness APPG and it is hoped that the Treasury, including the new Financial Secretary to the Treasury, Lucy Frazer QC MP, who is herself a lawyer, will take this proposal seriously and that she and the Chancellor will accept that a resolution is needed that works for all sides and gives closure on the issue, practically and politically.
Commenting, specialist tax solicitor Sarah Gabbai, who has co-ordinated the proposal said:
“As a group of sector professionals, having seen the impact of the Loan Charge and the previous settlement process on many people, we have decided not only to speak out but also to try to offer an independent resolution, that is in the interests of everyone, including HMRC and the Treasury.
“HMRC have a legal duty to enforce the Loan Charge, but they know that there will be people who simply cannot afford to pay the sums demanded and that for some people, bankruptcy will be inevitable. We also believe that it is unfair that taxpayers are being made to pay all the disputed tax, when the majority of people were victims of mis-selling and when several other parties were involved and must accept some responsibility for the situation those taxpayers are in.
“We look forward to presenting the proposal to the Loan Charge and Taxpayer Fairness APPG and we hope that the Treasury and HMRC will take this proposal seriously and will work towards a fair resolution that gives closure to all and avoids the consequences if nothing is changed. We will work with HMRC, the Treasury, the APPG and others to find a way to resolve this issue and allow everyone to move on”.
Commenting, tax barrister Keith Gordon, who is supporting the proposal said:
“We strongly believe that now is the time for all parties to work together to agree a common sense, compassionate resolution for all those who have been affected by the Loan Charge. This has been a very controversial issue and one that continues to be a source of anxiety for those affected, a huge administrative burden for HMRC and a difficult issue politically for the Government.
“We sincerely hope that the new Financial Secretary to the Treasury, who of course is also a lawyer herself, will look afresh at the whole issue and realise that a fair resolution is in everybody’s interest. I remain committed to do what I can, working with other professionals, to assist finding a way forward and a way out for all concerned”.
