The Government have been forced into a humiliating climbdown by cross-party MPs over the controversial 2019 Loan Charge. Despite attempts by Conservative Whips to coerce MPs, Government Ministers knew they had failed when many backbenchers made clear they would support calls for a review of the Loan Charge in the Finance Bill today. With the DUP also opposing the Loan Charge, the Government climbed down in the face of an embarrassing defeat, having already suffered one earlier regarding Brexit. It is
Sir Edward Davey MP (Liberal Democrat, Kingston and Surbiton) had tabled a cross-party amendment, New Clause 26 (#NC26) to the Finance Bill, calling for a review of the Government’s controversial 2019 Loan Charge. A total of 38 MPs from across the political spectrum had signed the amendment by yesterday and many more MPs came forward to support NC26 today and join the debate on the clause. The only individual defending the Loan Charge was the increasingly isolated and discredited Treasury Minister, Mel Stride.
The Loan Charge, due to come into effect in April this year, would see thousands of freelance workers facing bankruptcy, homelessness and breakdown. The draconian Loan Charge overrides all regular taxpayer protections and allows HMRC to go back twenty years, demanding huge tax bills for employment arrangements that were legal and fully declared to HMRC at the time.
Victims, which include social workers, teachers, doctors and nurses as well as IT contractors, followed professional advice and submitted their tax returns every year, with HMRC never challenging them at the time. They now face life-destroying tax bills that they cannot pay or appeal to an independent tribunal or court.
Sir Ed Davey’s successful amendment forces the Government to conduct a review of the policy and to do so before the end of March. Sir Ed and other supportive MPs had sought to table an amendment removing the retrospective element of the Loan Charge, but were prevented from doing so. In a cynical move, the Government failed to table an ‘amendment to the law’ which is usual practice and allows MPs to make changes to the Bill.
Despite this the review of the Loan Charge that will now take place will ensure that the Government faces the truth about the damage their ill-considered policy will do to individuals, to the contracting industry in the UK, as well as to the economy and public services.
Opposition to the retrospective Loan Charge has already attracted widespread political support. Over 100 cross-party MPs, including Conservatives and DUP MPs, have signed an Early Day Motion calling on the Government to ‘revise the legislation to avoid significant damage to independent contractors and freelancers in the UK’.
HMRC’s unfair and aggressive pursuit of retrospective Loan Charge taxes has also been damned in a powerful report published by the House of Lords Economic Affairs Committee on 4th December 2018, which said there is “disturbing evidence” and “reports of increasingly aggressive behaviour towards taxpayers”. It calls on the Government to reform the Loan Charge, which Lords declared is “clearly retrospective” and “undermines basic principles of tax fairness and certainty”.
Many people would be unable to work again if hit by the charge and two people facing the Loan Charge have tragically committed suicide, one citing the policy.
Sir Ed Davey commented:
“This review is about an important tax principle. The Government are in effect in breach of the rule of law with the retrospective nature of their loan charge.
“And the unfairness of that has brought misery to thousands of people.
“While Ministers have listened, the review that’s now been established must respond to the concerns of MPs across the House.
“Treasury Ministers have a duty to respond seriously and substantively.”
LGAG spokesperson, Steve Packham, said:
“We are delighted that MPs have forced the Government into accepting a review of the appalling Loan Charge which, if it comes in, will destroy families and cost lives. This is a victory for the campaigners, for Parliament and for the rule of law.
“Thousands of families are extremely grateful to Sir Edward Davey for tabling this important amendment and to all those MPs who signed it and pledged their support. Many individuals facing life-ruining bills for tax that they do not believe they owe for schemes that were always legal now have some hope that this draconian retro-tax grab will be halted.
“The review, though, must be a genuine one and not a whitewash by the Treasury, who have spent months misleading MPs and covering up HMRC’s failures. If it is genuine, like the recent House of Lords report, it will expose the reality of this damaging and unfair measure.
Phil Manley, Partner at DSW Tax Resolutions and a LCAG campaigner added:
“Despite being forced to concede defeat, it was an appalling & utterly ungracious response from Mel Stride. He gives in on having a review, but then tried to give its conclusion, parroting the same misleading information the Treasury have been peddling for months. As he knows full well, but again deliberately mispresented it, the Rangers case says employers are liable not employees! He also keeps claiming the schemes were defective, but he knows that this is meaningless and has no basis in law, when he also knows the schemes were legal at the time. It’s not good enough and once again he has misled the House of Commons.
“So we need some honesty from him and the Treasury. We call on the Government to now, at last, listen to the overwhelming evidence and majority parliamentary support for reform to this manifestly unfair legislation before it destroys the lives of tens thousands of people in just three months’ time.”