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U.K. Lawmakers Call for ‘Affordable’ Resolution of Loan Charge

By: Andrew Goodall

 

A cross-party group of parliamentarians has asked Chancellor of the Exchequer Nadhim Zahawi to set up a “fully independent” review of the controversial loan charge and to work toward a “genuinely affordable settlement opportunity.”

 

In a July 29 letter to Zahawi, the All-Party Parliamentary Loan Charge & Taxpayer Fairness Group (APPG) cited a recent letter it received from Financial Secretary to the Treasury Lucy Frazer.

 

HM Revenue & Customs “has referred nine cases to the [Independent Office for Police Conduct] where a taxpayer has sadly taken their life and had used a [disguised remuneration] scheme,” Frazer wrote. “Eight investigations have concluded there was no evidence of misconduct by any HMRC officer; one investigation is ongoing. The government takes this matter seriously, which is why HMRC is taking forward organizational learning from the eight concluded investigations to continue to learn and make improvements to the support that HMRC provides to taxpayers who need extra help and empathetically manage these sensitive cases,” she added.

 

“We have warned successive chancellors and Treasury ministers of the serious suicide risk from the loan charge and the overall current approach of the government and HMRC to people who were mis-sold these schemes by professional advisers, including chartered accountants and tax advisers,” the APPG's letter said, adding that 15 percent of respondents to a March call for evidence had “reported suicidal thoughts or intent.”

 

The APPG told Zahawi that based on evidence it has received, “there can be no doubt that the loan charge, as a policy, has led to suicides and that more suicides are a real possibility.”

 

There is “a pressing need, in light of this latest tragedy, for a review that is fully independent of the Treasury and HMRC,” the APPG said in the letter signed by co-Chairs Sammy Wilson and Greg Smith and Vice Chair Susan Kramer.

 

The APPG claimed to have recruited its 250th member on July 26. Treasury should accept the need for “a resolution, a genuinely affordable settlement opportunity, such as the one proposed by the group of tax professionals earlier this year,” and HMRC knows that “people simply cannot pay what is being demanded of them, so it is actually futile to pursue people for such punitive, unaffordable sums,” it argued.

 

Tax professionals had proposed that the government should consider “offering a settlement opportunity to affected taxpayers on a ‘no-fault’ basis, with a view to reaching an individually negotiated, affordable settlement that would give affected taxpayers credit for past compliance, and for HMRC to close off the issue for good,” Sarah Gabbai, a corporate tax lawyer at McDermott Will & Emery, wrote in a February article for Tax Journal.

 

“HMRC’s current approach is unsustainable,” Gabbai said. Tax Journal reproduced a December 2021 letter to Rishi Sunak, then chancellor of the Exchequer, which was signed by Gabbai and 11 other tax professionals, including barristers Keith Gordon and Peter Vaines, and Chartered Tax Adviser Pete Miller.

 

The group recommended “that HMRC engage with the Loan Charge Action Group and others, including the [Low Incomes Tax Reform Group] and [Chartered Institute of Taxation], to find a solution that would be acceptable both to HMRC and to taxpayers facing the loan charge, with the discussions supported by the CIOT and the Institute of Chartered Accountants in England and Wales as necessary to ensure that both sides listen to each other.” The APPG’s secretariat is staffed and funded by the Loan Charge Action Group.

 

A new review of the loan charge should be conducted to “critically assess the implementation and effectiveness” of the Morse review's recommendations and address the continued use of disguised remuneration schemes, the Low Incomes Tax Reform Group said in October 2021.

 

An APPG call for evidence from professional advisers with clients affected by the loan charge closed on July 15. Wilson said the insight of accountants, tax advisers, and lawyers would be “valuable in demonstrating the reality of the situation.”

 

Frazer said in a written parliamentary answer on July 21 that Zahawi “has not discussed correspondence sent by the Loan Charge Action Group” with Amyas Morse, who has been known as Lord Morse since February 2021 when he was made a life peer.

 

“The loan charge has been legislated in Parliament and was introduced in the 2019-2020 tax year. Lord Morse was clear in his report that the loan charge was an appropriate response to the tax avoidance activity that had taken place. HMRC continue to work with and support taxpayers to resolve all outstanding enquiries and assessments relating to disguised remuneration loans,” Frazer said.

Company Tax Notes
Category FREE CONTENT;ARTICLE / WHITEPAPER
Intended Audience CPA - small firm
CPA - medium firm
CPA - large firm
Published Date 07/29/2022

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