British MPs investigating a new loan charge have branded it a “cynical attempt by HM Revenue & Customs to cover up past failures” and they accused ministers and officials of breaching civil service and ministerial codes over the tax policy.
The charge, which is set to come into force on Friday, will tax at least 50,000 contractors who used loan-based avoidance schemes on income received up to 20 years ago, in a single financial year.
Members of the loan charge all-party parliamentary group, which consists of more than 100 MPs, called for an immediate six-month halt to the policy and for an independent review led by a tax judge to assess whether it should be scrapped or amended.
The group has been conducting a select committee-style inquiry into the policy since February. In a damning report, published on Wednesday, the MPs said HMRC had failed to act quickly enough to address the growth in loan schemes from the turn of the millennium.
“Despite this, HMRC has chosen to disproportionately penalise those who entered into loan agreements, as opposed to the umbrella companies that offered them,” the report said. “The evidence — and [HMRC’s] own admissions — show that there was a profound failure on HMRC’s part to tackle payroll loan arrangements, hence they pushed for the introduction of a retrospective charge to allow them to seek tax where they were no longer able to do so.”
The Treasury and HMRC had “ducked proper scrutiny and evaded answering key questions” about the policy, the MPs said. This included seeking to “evade questions” over evidence received by the committee that contractors working for HMRC and other government departments had used loan arrangements and were subsequently facing the loan charge.
There had been “so much misleading information from HMRC and the Treasury that it is impossible to trust anything they say with regard to the loan charge,” the report added.
The “lack of integrity” shown by HMRC officials constituted a breach of the civil service code, the MPs said. The report also added its voice to calls made by the Lords economics affairs committee last year for a review into HMRC’s powers.
Ps also accused Mel Stride, the minister responsible for HMRC, of breaching the ministerial code. They pointed to statements made by the minister to MPs and journalists that 20 people had been convicted for “offences relating to arrangements which have been promoted and marketed as tax avoidance schemes” since April 2016. A recent freedom of information request revealed none of these convictions related to loan schemes. Marketing avoidance schemes is not a criminal offence and can only be prosecuted if fraudalent in nature.
Mr Stride told the FT last month that claims that the charge was unfair were “misconceptions” and that “HMRC are not out to bankrupt people”.
Meanwhile, HMRC and the Treasury, which will be sent the report on Thursday, had failed to “assess the health, social and economic damage the loan charge is causing” the report said, ignoring the suicide risk and mental welfare of people facing the tax. It criticised the government for failing to set up a 24-hour counselling helpline, despite being informed of the suicide risk in June 2018. It also criticised the authorities for completing no estimate of the number of bankruptcies that would result because of the policy, pointing to its own survey which showed that more than 50 per cent of affected people were facing bankruptcy.
The report was based on evidence received from 900 written submissions, testimony from tax professionals and individuals affected by the charge, and a survey of 1,800 affected individuals. It also drew on letters and public statements from Mr Stride and officials from the tax authority, neither of whom chose to attend the inquiry.
A Commons backbench debate on whether the loan charge should be delayed for six months is set to take place on Thursday.