MPs call on financial secretary for new independent review of HMRC policy

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MEPs call on HM Revenue & Customs (HMRC) to suspend the UK government’s controversial loan fee policy on the grounds that there is no “relevant or justified legal basis” left.

The instruction is set out in a letter to Lucy Frazer, Financial Secretary to the Treasury, signed by members of the 245-member caucus on Parliamentary Loans and Taxpayer Fairness.

The letter states: “The borrowing costs were not properly scrutinized by Parliament when they were introduced, and they have no relevant or justified legal basis – they should never have been passed and the government must now remedy this by announcing a legislative change, as well as directing HMRC to suspend all application of the loan fees and associated expedited payment notices. “

The seven-page missive also asks Frazer to answer 10 “thoroughly researched” questions about loan fees, which he says neither Treasury nor HMRC have fully answered in their responses to date when they were asked about the inner workings of the controversial politics.

Announced in Budget 2017, the loan fee policy is designed to help HMRC recoup the money it claims entrepreneurs in various industries – including IT – have avoided paying in the past by opting for that part of their salary be paid to them in the form of non-loans or taxable annuities.

These loan-based compensation plans were typically run by offshore benefit trusts and were falsely marketed as an HMRC-compliant means for entrepreneurs to boost their take-home pay by artificially minimizing their employment-related tax obligations. .

Thousands of IT contractors who participated in these programs between December 2010 and April 5, 2019 have since been landed with six-figure tax bills from HMRC via the loan fee policy, which would have resulted in massive bankruptcies and at least eight suicides.

The retroactive nature of the policy has seen HMRC repeatedly criticized for suing it, as well as its efforts to crack down on disguised compensation plans disproportionately target individual participants rather than the organizations that run them.

Incidentally, one of the questions posed to Frazer in the letter addresses this point, while also asking him to confirm to him the precise number of promoters and operators of loan programs who have been prosecuted, convicted, arrested or sentenced to a fine in connection with HMRC’s loan charge enforcement activities.

There is growing anecdotal evidence that many contractors who end up joining these programs have done so unintentionally, having been coerced by their end customers into providing their services through an umbrella company. non-compliant which serves as a facade for the program.

Under the loan fee policy, there are limited avenues for individuals to challenge or appeal sanctions imposed by HMRC, which is another area the letter calls on Frazer to address.

But the salient questions addressed to Frazer in the paper relate to the results of Lord Morse’s 2019 independent review of the loan fee policy, which saw the policy’s retrospection period reduced by more than 10 years.

“The main conclusion of the Morse report was that” borrowing costs should not apply to loans taken out before December 9, 2010, being the point at which the law [on the use of disguised remuneration schemes] became clear, ”the letter said.

“This legislation, announced in December 2010, only affected employees – there was nothing in the legislation for seven years to suggest they were not working for the self-employed. The 2011 legislation only applied to employer-employee loans paid by a third party. It did not apply to self-employment agreements or employment agreements in which no third party was involved.

As detailed previously by Computer Weekly, Morse Review’s conclusion that the law on the use of disguised compensation plans has been clear since 2010 has been repeatedly challenged by the all-party group of MPs who make up the Loan Charge APPG, as well. than by stakeholders from across the contracting community.

In the letter, MPs say the law was “categorically unclear” about the use of loan-based compensation plans until 2017, prompting HMRC to propose the policy in the first place.

“As Financial Secretary to Treasury and QC, will you now make a public statement to challenge and rectify this erroneous and unfounded conclusion, confirming that loan fee legislation will be amended to reflect the reality of the correct legal position? , which was clearly misunderstood by Lord Morse at the time of his examination, ”the letter reads.

The letter also asks Frazer to confirm the circumstances and criteria used to determine who would assist Lord Morse in compiling the review, following the disclosure of Freedom of Information requests that suggest this process may have been influenced. by HMRC and the Treasury.

The letter ends with a call for a “new, fully independent review of loan fees,” in the face of growing all-party support in the House of Commons from MPs and non-member peers. agree with the policy.

“We hope you can now see that loan fees are not only a deeply controversial policy that undermines the rule of law, but also a flawed policy introduced without proper understanding and with justification. misleading, ”the letter says.


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