HMRC downplays significance of CEO email ‘questioning’ legal basis of loan charge policy


HM Revenue & Customs (HMRC) has sought to minimize the significance of a personal email wherein its CEO seems to query the legal footing of the division’s controversial loan charge policy.

The email, disclosed as half of a doc dump secured by way of a Freedom of Information (FOI) request, encompasses a sequence of messages despatched by HMRC CEO Jim Harra from January to December 2019 in regards to the division’s ongoing efforts to clampdown on disguised remuneration schemes.

Central to this clampdown is the loan charge policy, which was launched in November 2019 to allow HMRC to claw again the cash it claims contractors prevented paying up to now by opting to have half of their wage paid out to them within the kind of a non-taxable loan.

The policy has seen hundreds of IT contractors obtain life-changing, six-figure tax payments from HMRC regarding work they did between December 2010 and 5 April 2019, leading to mass bankruptcies, and it has additionally been linked to no less than seven suicides.

One of the emails despatched by Harra, who on the time was serving because the division’s deputy CEO, on 31 January 2019 has been seized on by tax regulation consultants and anti-loan charge campaigners as proof the legal arguments HMRC has repeatedly put ahead to justify the policy are unsound.

The particular person who submitted the unique FOI request is a Loan Charge campaigner who goes by the Twitter deal with @FairMinistry. “This is indeed extremely damaging for HMRC and it destroys the already shaky foundations of the Loan Charge,” they informed Computer Weekly.

Specifically, HMRC’s view that non-taxable loans paid out in-lieu of a wage to contractors that participated in disguised remuneration (DR) schemes must be handled as revenue and taxed as such.

Anti-loan charge campaigners

The email in query was despatched the day after a Treasury Select Committee listening to, with Harra making a passing reference to the social media response from anti-loan charge campaigners to the occasion.

“Setting aside the insults,” he stated, there are some “substantive” feedback rising from the net dialogue in regards to the listening to that he goes on to share.

“The main substantive comments are… HMRC persistently claims that DR schemes never worked, but despite allegedly challenging DR schemes for the last 20 years, we have not obtained tribunal/court decisions that back up this claim. In particular we have not obtained decisions establishing that individuals are taxable on DR loans as income,” he wrote.

He then follows up on this remark by happening to seemingly element his personal abortive efforts to safe “legal analysis” to backup HMRC’s justification for the policy.

“In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim with very little success,” wrote Harra. “For yesterday’s hearing we were initially given a summary of [tax] avoidance wins, some of which seemed to have nothing to do with DR.”

In an announcement to Computer Weekly, Loan Charge Action Group (LCAG) spokesperson Steve Packham described the emergence of the email as “highly embarrassing” for HMRC, seeing because it basically exhibits its personal CEO calling the policy’s legal footing into query.   

“The latest information exposed confirms that senior civil servants and ministers have been dishonest about the loan charge and know full well that it is not based on legal precedent and that it was introduced to allow HMRC to override the rule of law,” he stated.

Distinction

The same sentiment is shared by tax barrister Keith Gordon, who informed Computer Weekly the email demonstrates a “distinction between HMRC having a view about a worker’s tax position and getting a legal opinion to justify that position”.

“It demonstrates that the foundations of the loan charge were spin and HMRC’s hopes rather than any substantive legal opinion, even one coming from HMRC’s own lawyers,” he added.

The emergence of this email can be premature for the Treasury given monetary secretary Jesse Norman’s criticism of Labour MP Ruth Cadbury’s feedback earlier this week throughout a debate in regards to the forthcoming Finance Bill, stated Gordon.

“Only 24 hours before, the financial secretary to the Treasury, Jesse Norman, sought to chastise the Labour MP Ruth Cadbury for suggesting that many taxpayers could not be expected to have recognised the correct tax treatment of these arrangements. Now it seems that the head of HMRC was having similar difficulties,” he added.

Dave Chaplin, CEO of contracting authority ContractorCalculator, expressed shock on the contents of the email, and stated it reinforces why HMRC’s pursuit of contractors by way of the loan charge policy is misdirected.

“It’s staggering to see Jim Harra, the current CEO of HMRC, admitting in this set of emails that they have struggled to secure a legal opinion that supports the narrative they have been promoting for years,” he stated. 

“Legislation is the only way forward if we are to rid the industry of dodgy and repellent schemes that have been allowed to thrive and ruin the lives of hard-working contractors.  Some simple fine tuning of the Finance Bill that is currently passing through Parliament could and should shut them down once and for all.”

In an announcement to Computer Weekly, a spokesperson for HMRC moved to minimize the significance of Harra’s admission of having “little success” in securing a legal justification for figuring out DR scheme loans must be taxed as revenue.  

“These emails show Jim Harra providing challenge to HMRC officials, which is one of the functions of his office,” stated the spokesperson.

As for the insinuation that the loan charge policy is predicated on shaky legal floor, the spokesperson cited HMRC’s 2017 victory within the Supreme Court towards Rangers Football Club, which had beforehand used loan-based DR schemes to pay its gamers and senior executives.  

In that case, the Supreme Court backed HMRC’s assertion that such schemes don’t work, and that Rangers ought to have deducted revenue tax and National Insurance Contributions (NIC) they made to the scheme, which was operated through an offshore worker advantages belief (EBT).

“HMRC won the Rangers case at the Supreme Court in 2017 which held unanimously that contributions made by an employer into an offshore trust for the benefit of employees were subject to income tax and National Insurance Contributions at that point,” the spokesperson added.

Gordon, nevertheless, stated it’s flawed for HMRC to counsel the Rangers case legally justifies the loan charge policy. “As HMRC correctly point out, the schemes were eventually found out to be ineffective in that tax and NIC should have been deducted from the payments at an earlier stage of the process,” he stated. 

“What HMRC fail to mention, however, is that the obligation to deduct tax and NIC falls on the payer (typically, the employer) and not the employee. Furthermore, employees are given a ‘credit’ for this tax, even in cases when it was not paid over to HMRC by the employer.”



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