Repaying sums paid to HMRC under agreements relating to certain loans etc

Finance Bill – in a Public Bill Committee am 3:00 pm ar 4 Mehefin 2020.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Andrew Rosindell Andrew Rosindell Co Chair, British-Irish Parliamentary Assembly

With this it will be convenient to discuss the following:

Clause 20 stand part.

New clause 7—Loan charge: report on effect of the scheme—

‘(1) The Chancellor of the Exchequer must commission a review, to be carried out by an independent panel, of the impact in parts of the United Kingdom and regions of England of the scheme established under sections 19 and 20 and lay the report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) company solvency.

(3) A review under this section must consider the fairness with which HMRC has implemented the policy, including whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.

In this section “parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require a review of the impact of the scheme to be established under Clauses 19 and 20.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

It must be a tedious amendment indeed that has not excited the imagination or genius of the hon. Member for Ilford North, so I am grateful to him for clarifying that.

Clauses 19 to 20 implement recommendation 6 of Sir Amyas Morse’s independent review, ensuring that Her Majesty’s Revenue and Customs can refund the elements of settlements that were made since 2016, paid to settle unprotected years either before 9 December 2010 or between 9 December 2010 and the start of the 2016-17 tax year, where the taxpayer had made a reasonable disclosure of their scheme usage in their tax return.

Clause 19 requires HMRC to set up a scheme under which it may refund qualifying amounts of certain voluntary payments. Such refunds can be made only where the qualifying amount was paid under a settlement agreement made with HMRC on or after 16 March 2016 and before Budget day on the 11 March 2020. Additionally, the qualifying amount must have been paid in relation to a loan made before 9 December 2010 where HMRC did not have power to recover the amount due at the time the agreement was made, or it must have been paid in relation to a loan made after 9 December 2010 and before 6 April 2016 where a reasonable disclosure of the use of the loan scheme was made to HMRC at a time when HMRC had the power to recover the amount due, but did not take any action.

Clause 20 sets out the details that may be contained in the refund scheme. This may include who is eligible to apply for a refund, how an application should be made and the factors that will be taken into account by HMRC in calculating the refund due.

I now move to new clause 7, an SNP new clause, which would require the Chancellor of the Exchequer to commission an independent review of the impacts of the repayment scheme established under sections 19 and 20, and to lay the report of that review before the House of Commons within six months of the passing of this Act. Of course, it is very important that we should consider the impact of all tax policy on individuals and, in this case, of the repayment scheme on the approximately 2,000 taxpayers, including companies, the self-employed and employees, who may be entitled to claim a refund under the scheme.

Although that is the case, the Government do not think there is any cause to undertake an additional report. The Government have already accepted Sir Amyas Morse’s recommendation in his independent, thorough and expert report that the Government should report to Parliament on all aspects of our implementation of the loan charge changes before the end of 2020. This was recommendation 14 of the independent review into the loan charge. It was accepted by the Government at the time, and it already adequately fulfils the requirement put forward in new clause 7. For that reason, I commend clauses 19 and 20 to the Committee, but I ask that the Committee reject new clause 7 if it is put to a vote.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

I thank the Minister for his remarks. He recognises the importance of the schemes, but I think it is also important to recognise whether the effect of the policy is sound. We need to review and keep under review how this is actually working, and we need to understand the impact of the scheme.

This is why we have asked for a review to consider the effects of the provisions on business investment, employment, productivity and company solvency. We want to look at parts of the United Kingdom—Scotland, Wales, England and Northern Ireland—to see if there is any differential impact as well. It may be the case that some aspects impact on different sectors in different areas more so than others. I know that colleagues in the north-east of Scotland may want to highlight the impact on the oil and gas industry, whose employees have been in touch as part of their constituency business.

It is important to understand what the impact has been, and I think we are guilty, and the Government are certainly guilty—all Governments are guilty—of bringing things forward in the Finance Bill and making proposals, then not really following up and not really understanding the impact. That is often how we arrive at difficult situations such as the ones we are seeing today. I would certainly encourage the Government to consider this again. It is important that what they do is correct, and if it is not correct, it is important to understand that as it rolls out. On the refund scheme, I just want to ask how exactly it will work, when people can expect to obtain any refunds and, indeed, if there is any timescale in place for that.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury)

I will come on to address new clause 7, proposed by the hon. Member for Glasgow Central, shortly because that opens up a broader range of issues worthy of review, such as the scrutiny of HMRC’s implementation of all this.

Clauses 19 and 20 legislate for the proposed disguised remuneration repayment scheme 2020—in broad terms—only. The clauses provide HMRC with considerable discretion as to how to operate the scheme. For example, while there is a right to a review of a repayment decision refusing repayment, that is only by way of representations to HMRC within two months of the decision. There is no independent review of the process. Given what I saw on the Treasury Committee of HMRC’s conduct on the loan charge, that is a serious oversight and mistake. People should have recourse to an independent process, and I am concerned that that is not the case as proposed.

The London Society of Chartered Accountants wrote:

“Following the Morse review, this provides for repayment of tax already paid by some taxpayers under the earlier loan charge provisions. In addition, interest should be paid at a preferential rate and there should be restitution of loss of income.”

The society firmly believes that

“if a taxpayer has been wrongfully taxed, he should be returned in full to his starting position, so that he has not suffered any loss”,

and it notes that, in loan charge cases, tragically,

“the consequences have been much more severe for some people, including bankruptcy, loss of home, broken marriage and, in a few tragic cases, death by suicide”,

which I will come on to say more about shortly.

Why is there no independent review process or right to appeal for HMRC’s customers? Will the Minister also explain how the Government will ensure that the scheme is operated by HMRC in the manner intended by the Government, given that the Bill leaves HMRC such broad discretion in the operation of the scheme?

We have heard representations from the all-party parliamentary loan charge group, notwithstanding the Minister’s critique of the all-party parliamentary group, if I may put it that way. The APPG described HMRC’s behaviour as “unacceptable”, stating that it

“at times represents clear misconduct and bullying.”

That is a serious charge for the APPG to level at HMRC, and I am curious to know the Minister’s views. Certainly, in my experience of taking evidence from HMRC at Select Committees, its approach to the loan charge, broadly speaking, warrants some degree of independence and right of appeal.

Finally on the points made by the London Society of Chartered Accountants, we need to consider the impact on individuals. For example, if an individual were forced to sell their home, but subsequently liable for a refund, what would the Minister envisage as reasonable in terms of putting the situation right in such circumstances?

Turning to clause 20, the Chartered Institute of Taxation notes that clause 20(5)(a) and (b) refer to “any other person”. The provision authorises HMRC to make repayment conditional on the applicant and “any other person” agreeing to the termination or variation of a qualifying agreement, or making a new agreement. Will the Minister provide some clarification as to whom “any other person” might be? What was the thinking behind that particular part of the Bill?

Clause 20(6)(a) allows the repayment scheme to make provision for the effect that the settlement agreement has had on an applicant or “any other person”. Further to that, subsection (7) allows provision to be made to ignore repayment for the purposes of whether a person is subject to any other liability. Typically, more recent settlement agreements included a provision for the writing off or waiving of a loan as part of a settlement agreement with HMRC. Will the Minister confirm that that means that a loan write-off, for example arising from or in relation to the settlement agreement, will not cause a tax charge to be triggered where repayment is made in respect of the tax year now dropping out of the loan charge?

If that is correct, those concerned will not have paid income tax on the making of the original loan under the loan charge on the subsequent waiving of the loan, and so indeed would be fortunate relative to other individuals in different circumstances. If that is the case, will the Minister provide a justification for that, and an explanation for the discrepancy in how different groups of taxpayers will be impacted by the new legislation?

Is it correct that post 11 March this year, settlement proposals, including those that HMRC deferred while the independent review was conducted, do not include a provision for the writing off or waiving of any part of a loan that falls within a qualifying year—that is, loans made before 9 December 2010 and those made since then, but before 6 April 2016, where reasonable disclosure has been made? If that is correct, these individuals would seem to be rather less fortunate, so again, an explanation for the discrepancy in how different groups of taxpayers will be impacted by the new legislation would only be reasonable.

I will now turn to the SNP’s new clause 7, and make some broader observations in relation to the implementation of this scheme. As we have heard from the hon. Member for Glasgow Central, new clause 7 effectively institutes a review that must be carried out by an independent panel to look at the implementation of the scheme. I was particularly struck by the reference in the new clause to that review including a consideration of

“whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.”

This is important, for two reasons. First, as I have said, there is a great deal of anxiety across the House that HMRC has not always acted fairly; from the evidence we took on the Treasury Committee, that is my own view. Knowing that an independent review is in the offing might concentrate the minds of tax inspectors and the management of HMRC on ensuring that the broad discretionary powers this Bill affords them are exercised responsibly. If the Minister is not content to listen to our representations and those of others that there should be a right of independent appeal, which would be unfortunate, there should be at least some checks and balances in place to scrutinise the work of HMRC and make sure that this scheme has been effectively implemented.

Of course, the Treasury Committee in the Commons and the Committees in the House of Lords might want to undertake some of this work in any event. However, with respect to the Treasury Committee—for which I, as a former member, have a great amount of respect and affection—I do not think that it would pretend that the scrutiny work we were doing on the loan charge was in any way a substitute for the really in-depth work undertaken by Sir Amyas Morse when he conducted the independent review. He had the ability to go into HMRC, to look behind the cupboards and underneath the floorboards, and grill and interrogate how things have been managed. Select Committees have a place, but we are talking about something that is far more focused and technical, and I hope that consideration is given to that fact.

I think that knowing the review is coming will affect behaviour in a positive way. Hopefully that review will be straightforward, and HMRC customers—our constituents—will find themselves treated more fairly than they might otherwise have been. That would certainly give me and, I am sure, other Members across the House a bit more reassurance that the broad powers being given to HMRC will be exercised in a responsible way, and that some degree of oversight is coming down the track.

The other reason why I think this part of new clause 7 is really important is the reference to

“avoiding business failures and individual bankruptcies.”

I do not think anyone—including, by the way, our constituents who have been caught up in this loan charge fiasco—would resent the idea that people who have not paid their fair share ought to do so. Certainly, the constituents whom I have seen at my advice surgeries have given explanations as to how they ended up in this mess in the first place. In the case of my constituents—I am sure I am speaking for other Members across the House—it is hard to overstate the extent of the shame and embarrassment that some of them have shared with me at those surgeries, in quite a distressing way. Lots of people have been caught up in this who no doubt deliberately sought to avoid paying their fair share of tax, and I do not have very much sympathy with those people. However, there are other people who ended up in this mess inadvertently.

I tend to go by the adage, as others do, that if it looks too good to be true, it is too good to be true. I think there are lots of people who are feeling pretty foolish, and who have acknowledged their embarrassment when talking to their MPs. I am worried because when we look at some of the liabilities people are now facing and their individual circumstances, we know that some people have been driven to sell their homes, been forced into real financial hardship, and have seen the collapse of their businesses. I do not think any fair-minded person would imagine that the outcome we all want from this process is people forced into bankruptcy, with their lives in ruins. We want them to pay their fair share, to be held to account where they have done wrong, and to make sure that they are paying their tax in a way that others do, but surely there is a fairer way to go about some of this than simply ruining people. In some cases, HMRC will not end up recouping all the losses to the Exchequer in any case if people are forced over the edge.

That has to be taken seriously. The last figures I saw showed that, to date, there had been seven suicides of people facing the loan charge, and that should weigh heavily on all of us. No one wants to see such a tragic end to this horrible mess. When we look at the size of some of the liabilities people are facing, we see that it is incredibly daunting for them and it places a huge burden on them and their families. Some people feel it is a burden they can longer face, and we ought to make sure that is not the outcome faced by anyone affected by the loan charge.

I want to return to the recommendation of the Morse review that those with incomes under £30,000 should have outstanding balances written off after 10 years of making reasonable payments. The Minister has given his account of why the Government have not accepted that recommendations, but I wish to make two points. First, the threshold that Sir Amyas identified of incomes of less than £30,000 tells us that lots of people who are not incredibly wealthy have been caught up in the loan charge. When we think about tax avoidance generally and about this scheme, it may be that we are talking about people working for one of the big four whose bonuses could happily write off their liability to HMRC, their luxury holiday, other extravagances that they had planned—the money they were planning to put down on that third holiday getaway somewhere nice in the world. We are not going to cry any tears for those people, are we?

However, lots of people involved in this are on much lower incomes. Some of them felt compelled to sign up to the loan scheme because that is what they were encouraged to do by the company or service provider contracting them—this applies in both the public and private sectors. A huge outstanding balance is a much higher burden for someone on a lower income. That is the first point to make, and it relates to financial hardship and individual circumstances.

Secondly, it does not sit well with me that the Government rightly pay tribute to Sir Amyas Morse and the work he has done, recognising his independence and expertise, and the extent to which he has dealt with the issues, but then say, at the end of the process, “We are accepting all your recommendations, bar this one, which we don’t like.” The Government would have a far stronger case if they said that they accepted the recommendations of the review in full. Otherwise, what is the point of independent reviews? This would not be the only Government in the history of the UK Parliament who have commissioned a review, sent a national treasure away to do some work, which they have done thoroughly, and then allowed it to end up gathering dust on the shelf. I recognise and welcome the fact that Sir Amyas can sleep easily at night knowing that his report is being enacted, but it is not right, and it does not sit well with me, that the Government have dismissed this one recommendation.

I also recognise what the Minister said about allowing greater flexibility for the repayment period, including a period of up to seven years. Again, however, I will just make this point: from looking at some of my own constituency casework, I know there are people who face tax liabilities of well over £100,000 whose combined household income would not make it possible for them both to repay that debt, even over that period, and pay their mortgage and look after their children; in one case I know of, there are two children involved, and in other cases there will be a different number of children involved.

That is a burden that people would find pretty hard to bear, and I wonder whether greater flexibility could be provided to give people a longer period of repayment if necessary. What consideration have the Government given to this issue and what discussions they have had with HMRC about it?

There is another issue that I will address by way of review, or mopping up these issues, as we come to the end of our deliberations around the loan charge. I wonder how familiar the Minister is with the issue of loans being recalled. Obviously HMRC is going after people and we are now hearing of cases of some people who face loans being recalled by parties who claim to have been assigned the rights to those loans, because in some cases loan books appear to have been sold on.

This situation just gets messier and messier, but it seems that some of those people, who are now locked into doing what they think is the right thing for HMRC, are being chased to repay their loans by debt collectors. I would be interested to know what representations the Treasury has had on that issue and whether the Government are planning further action on it.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 3:30, 4 Mehefin 2020

I thank the hon. Gentleman for his thorough and wide-ranging remarks. He is right that it is a kind of principle of tax policy in a way, or the typical reaction of an individual, and one wishes that the general instinct shared by 98% or 99% of the tax-paying population that he articulated well —namely, that if it looks too good to be true, it almost certainly is too good to be true—was shared by the whole of the population. However, for different reasons, that is not the case. The hon. Gentleman is right to articulate the principle that if it looks too good to be true, it is, and I thank him for doing so. I also thank him and his colleagues for the nuanced interrogation they have given this policy, but not diverging from us on its core thrust.

I want to make it clear that I am not remotely downplaying, undervaluing or minimising the personal feelings of people, or the impact or hardship that they have experienced as a result of this situation. Clearly, there have been cases that have been felt across the House and raised by different MPs, and Revenue and Customs understands that as well. It has made it very clear that it will not force people to sell their main home; that it will not, except in the most unusual circumstances, put people into bankruptcy; and that it will exercise, by adhering to a series of principles, a judicious approach to people’s settlement processes. That includes a principle that no more than half of someone’s disposable income should go to settle a tax dispute, so that families have not only their non-disposable income but at least half of their disposable income to support themselves.

Those principles also include, as I have indicated, a set of basic time periods to make a settlement—of five years in the case of someone earning under £50,000 a year, and of seven years in the case of someone earning under £30,000 a year—and that is part of the practice of Revenue and Customs, and a well-embedded principle.

Furthermore, if people have concerns that they are being badly handled in this process—this also relates to the point that the hon. Gentleman made about an independent review—they can appeal to tax commissioners for, as it were, an investigation and review. Of course, they also have the ability to go to their MP, and Members are very effective in raising tax-related issues on behalf of their constituents.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

On the point about MPs intervening on constituents’ issues, I would challenge the question around disposable income. A constituent of mine had been asked to pay money back, and the definition that HMRC gave of his disposable income was incredibly tight compared with the definition of it that he had, which included his finding difficulty in giving his children money for school meals. That seemed to be treated as part of his disposable income. His children have to eat; that is not disposable income as such. I ask the Minister to be very careful about how that is described and how HMRC acts on those kinds of things, because it takes a very strict line on disposable income.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

Of course, the approach taken needs to have foundational principles aligned to it, and those can be questioned in specific contexts and by the mechanisms that I have described.

The distributional impact of the way the loan charge disguised remuneration population breaks down has been put into the public domain and analysed by HM Revenue and Customs. For example, a relatively small number of people work in caring professions, contrary to the impression that colleagues may have been given. That is the context in which the final recommendation by Sir Amyas Morse, which is that these debts should be written off after 10 years, has been rejected by the Government. It is a recognition of Sir Amyas’s expertise and independence that 19 of his recommendations were accepted, and the Government have given a full account of the reason why they have rejected the 20th.

In line with Sir Amyas’s recommendations on voluntary restitution, HMRC will refund voluntary restitution already paid for years now out of scope of the loan charge, but will not refund settlements for the underlying tax liability where HMRC had protected its position. That is so that the treatment remains in line with the existing legal framework for HMRC to recover tax. Sir Amyas also recommended that for disguised remuneration loans taken out on or after 9 December 2010, HMRC should only refund voluntary restitution where the scheme user had reasonably disclosed their scheme use. We have discussed that already at some length.

Regarding some of the impact of the different pressures that may be on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers in reaching their original settlement or claiming refunds, but it may meet professional costs where they have been incurred as a direct result of a mistake or an unreasonable delay in its own dealings with a taxpayer’s affairs. That was not the position when HMRC was applying legislation in place at the time.

Refunding fees to those who have used avoidance schemes would send the thoroughly troubling message that taxpayers who had not used those schemes might not do as well as those who had, which is not one that this House should be particularly encouraging. Of course, if a taxpayer feels they have grounds for making a complaint, the usual mechanisms are available for them to do so.

In his recommendation 14, Sir Amyas called for the Government to report to Parliament on all aspects of their implementation of the loan charge changes,

“before the end of 2020”.

We will do that. I am grateful to the hon. Lady for laying out her concerns in that regard in this debate, and I will ensure that the officials understand and reflect on them when they start to frame this report.

As per Sir Amyas’s recommendations, the report will draw on input from the HMRC customer experience committee. It is very important to realise that the committee includes not only the non-executive directors of Revenue and Customs, but highly experienced independent people in positions of authority and expertise who are specifically customer experience experts in the private sector. The effect of the committee is to support but also challenge the HMRC executive on customer experience-related issues, and to help the Department deliver on its strategic objectives. In other words, part of its point is to ensure that HMRC treats taxpayers with a proper degree of courtesy and service levels, but in no sense becomes oppressive to them.

Let me pick up another important point, which I meant to mention earlier but have not yet: the very strong approach that HMRC is taking on promoters and enablers of tax avoidance. Certainly since I have been Financial Secretary to the Treasury, we have significantly enhanced the already substantial work being done in that area. That includes work that builds collaboration across Government, including with bodies such as the Advertising Standards Authority or the Insolvency Service. It involves proactive communications to help taxpayers to steer clear of avoidance.

HMRC has launched a consultation on ways to combat the promotion and enabling of tax avoidance; colleagues from different parties are welcome to make contributions to that if they wish. The areas it is looking at include tackling promoters and their supply chains, looking at the economics of tax avoidance, disrupting business models and improving compliance and enforcement in other ways. I would like the Committee to understand that HMRC is in no sense minimising the importance of going after promoters and enablers where it can—subject to law, and with new powers if it should be so decided after the process of consultation.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Photo of Andrew Rosindell Andrew Rosindell Co Chair, British-Irish Parliamentary Assembly

That comes later, at the end. We do not vote on that now.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Adjourned till Tuesday 9 June at twenty-five minutes past Nine o’clock.

Written evidence reported to the House

FB01 Society of Trust and Estate Practitioners (STEP)

FB02 Dr Graham Walker

FB04 Jonathan Kidd

FB05 Martin Barber

FB06 Peter Aveyard, Director of Lead BA Limited

FB07 Chartered Institute of Taxation Clauses 7-21 Employment Tax

FB08 Chartered Institute of Taxation Clause 22 Entrepreneurs' Relief

FB09 Chartered Institute of Taxation Clause 23 Private Residence Relief

FB10 Chartered Institute of Taxation Clauses 27-30 Business Reliefs

FB11 Chartered Institute of Taxation Clause 36 Top Slicing Relief

FB12 Chartered Institute of Taxation Part 2 Digital Services Tax

FB13 Andrew Stokes