On Thursday, 18th January 2024, Members of Parliament gathered in the House of Commons on the controversial matter of the Loan Charge policy. The policy, promoted through Parliament by HMRC in the Finance Act 2017, is a policy that retroactively taxes individuals caught up in tax avoidance schemes. Of the estimated 67,000 people affected, many were forced into using the schemes as a condition of getting work, and many more were completely unaware they were embroiled in a scheme until HMRC sent them a life-changing tax bill. To date, ten people have committed suicide as a result of what the Telegraph has referred to as the "next Horizon scandal."
The lengthy debate was opened by Sammy Wilson MP, who said: "I do not think that I am being overdramatic when I say this—that we are looking at another Horizon scandal, and the parallels are frightening."
Sir Jacob Rees-Mogg MP expressed his concerns about HMRC's behaviour when stating the purpose of the debate: "We are here to seek redress of grievance from an overmighty Executive [HMRC] who abuse their power. This is a classic example of the state abusing its power through aggressive tax collection."
What are the criticisms of HMRC?
The Loan Charge policy has sparked outrage due to its perceived unfairness in pursuing individuals instead of scheme promoters, lack of independent oversight over HMRC's conduct, and immense distress caused to taxpayers facing large backdated tax bills.
However, the Loan Charge is not unique when it comes to accusations of abuse of power by HMRC. Sir David Davis MP, drawing on the recent experience of Kaye Adams and IR35, said: "What is interesting is that the behaviour of HMRC on IR35 pretty much mirrors its behaviour on the loan charge."
Broadcaster Kaye Adams' tax tribunal case, Atholl House, further signals a lack of oversight of HMRC's excessive powers. Adams won multiple appeals over nine years, showing that HMRC was wrong to accuse her of tax avoidance. HMRC continued to appeal despite comprehensive losses, leaving her with £200,000 in legal costs versus a disputed tax of £70,000.
The Atholl House case demonstrates how the current lack of accountability emboldens HMRC to relentlessly pursue taxpayers until they exhaust time, money and willpower, reminiscent of the Post Office's treatment of sub-postmasters. Like persecuted individuals battling deep-pocketed institutions, taxpayers cannot defend themselves.
Post Office Scandal Parallels
During the parliamentary loan charge debate, Speaker after Speaker drew damning parallels between HMRC and Post Office's conduct, slamming the tax department's aggression and lack of accountability. The Post Office scandal involved sub-postmasters being falsely accused of stealing funds by the Post Office's defective Horizon accounting system. Despite protesting their innocence, the Post Office relentlessly pursued individuals through the courts by leveraging their vast resources and legal firepower.
Eerily similar themes emerged regarding HMRC's aggression over the loan charge policy and other areas like IR35 tax status rules that have also led to financial distress and suicides. Like the sub-postmasters battling the Post Office Goliath, individuals struggle against the infinite resources of HMRC.
No legal basis for Loan Charge
One clear parallel with the Post Office and Loan Charge scandals is the lack of wrongdoing on the part of individuals. The sub-postmasters were wrongly accused, some jailed, of stealing money. The 67,000 people caught up in the Loan Charge have been accused of not paying tax, but the Head of HMRC has conceded that there was no legal basis for that claim.
As Sir Iain Duncan Smith, MP, explained: "…I will observe that it has now become clear that HMRC is unable to find any legal basis to justify its claim that it has to pursue individuals, but not those who promoted the schemes. HMRC has tried to deny that for some time, but it has now become very clear."
Smith referred to the contents of an email written by the Head of HMRC, obtained by a Freedom of Information request, which stated: "In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim with very little success. For yesterday's hearing we were initially given a summary of avoidance wins, some of which seemed to have nothing to do with the schemes."
Smith concluded: "I simply say that HMRC still cannot justify the legal basis for pursuing individuals and not going after those who promoted the schemes."
Duncan Baker, MP, referred to the injustice of the loan charge: "If there is one thing that the British people hate more than anything else it is injustice, and it is the injustice of the loan charge scandal that makes it so important. The stark reality is that the people who were affected by it have had their lives ruined at just the same levels, in terms of financial as well as personal and family impacts, as those affected by the Post Office scandal."
Did HMRC fail to collect from the agency?
A briefing paper provided to MPs and shared with the Contractor Calculator drew attention to a key part of the Loan Charge Scandal, referring to "HMRC's failure to collect PAYE from agencies."
The briefing paper highlights the agency provisions of section 44 ITEPA 2003 and accuses HMRC of failure by not enforcing these existing tax laws that required agencies to operate PAYE on contractors' income. Instead, claims the paper, HMRC conceived the controversial Loan Charge to collect tax from contractors years later.
John McNally, MP, ventilated this point in Parliament: "…a vitally important part of the loan charge scandal is that these ordinary people were contract workers doing a job of work for somebody or some organisation that simply needed their services. Most importantly, they were workers, and as workers they were entitled to protection under the agency rules. The agency rules determine that their employer—be that the agency, the umbrella company or another body in the supply chain, or the end client itself—was liable to deduct the correct amount of PAYE and pay that to HMRC at the time, before paying the worker their salary. These companies simply did not do that. HMRC was well aware of the arrangements and, as has been said, did not pursue for tax any of the entities as the workers' employer. HMRC was also well aware many years down the line that it was legally out of time to do so. HMRC had, and still has, a duty to establish who the employer was and who was directing, controlling and supervising the worker who had been supplied. It has not done so; it has failed time and again to do so. Hence the invention of the retrospective loan charge to get around that very inconvenient and uncomfortable fact."
The stark point being made is that had HMRC enforced the agency provisions of section 44 ITEPA 2003, the Loan Charge would never have been needed at all.
HMRC is unaccountable
Outrage poured in from all parties against HMRC's handling of taxpayers and lack of independent oversight of HMRC. The debate echoed deafening calls for radical reforms to rein in excessive powers that enable harsh treatment of individuals.
Sir Iain Duncan Smith, MP, referred to HMRC as a "a very peculiar Department," stating "HMRC is unaccountable," and that it operates "almost with impunity," concluding with "I simply say that there is a problem with HMRC."
Greg Smith MP questioned how a body of the state, HMRC, could be "autonomous in being judge, jury and executioner at the same time?"
Sir David Davis MP, likened the overly powerful and unaccountable HMRC to oppressive communist nations, stating, "When a state organisation with infinite resources—actually, your tax money and mine—uses that power to overrule and reduce the ability of ordinary citizens to protect themselves, I am afraid it is behaving in a way similar to how countries behind the iron curtain used to behave."
Sir Robert Buckland, MP, sought to explain how the unaccountability problems began: "It [HMRC] was the product of a forced merger of the Inland Revenue and Her Majesty's Customs and Excise by, I think, Gordon Brown and the Labour Government. The merger was rushed—they were pushed together—and HMRC has never enjoyed the proper scrutiny and ministerial involvement that it should have received."
Sir Desmond Swayne MP said, "…the vendetta that HMRC is now pursuing, notwithstanding the obfuscation of the written answers to parliamentary questions, is exclusively against the victims of that mis-selling scandal."
Swayne closed his speech, warning the Minister, Nigel Huddleston MP: "My advice to my hon. Friend the Minister, today is this: set aside the brief that you have been given, and end this debate by just saying that you have sat here, you have heard what we have said and you are going to go away and ask the awkward questions and spend time with the victims. Because ultimately this will reach the public consciousness—we may even have our own TV drama; the reality is that there is plenty of scope for such a drama—and when it does reach the forefront of public consciousness, we will rue the day that we did not take the action when we could."
Nigel Huddleston MP, the Financial Secretary to the Treasury, responded to the debate on behalf of the Treasury, stating: "I have heard the comments made today, but I do not believe a case has been made for another review."
Sammy Wilson MP closed the debate, asking the Minister [Huddleston] to hold HMRC to account: "I think it is the duty of the Minister and the duty of Parliament to hold those who have this power to account and to make sure that it does not continue to be abused."
Curbing the Tax Dictators
In recent years, we have witnessed concerning instances of government institutions overextending their reach and authority in pursuit of tax collection and enforcement. While these institutions play a vital role, their powers must have reasonable limits and proper oversight. Otherwise, as we have seen, the consequences can be profoundly unjust.
Hardworking, law-abiding people have had their livelihoods ruined and lives shattered by excessive investigations and false accusations. When acting without independent accountability, institutions like the Post Office and HMRC can bring financial ruin and unbearable stress to innocent citizens.
The solution is clear - we need formal procedures and enhanced checks and balances to protect taxpayers from potential abuse. The American people faced similar unfairness in the 1990s, but Congress responded with a Taxpayer Bill of Rights. This established critical safeguards like an independent Taxpayer Advocate and legally mandated protections to prevent intimidation.
It's time for the UK to follow what America achieved to solve the same problem we are having - this is not a partisan issue but a matter of fundamental fairness and justice. With sensible reforms, we can strike the right balance - preserving the authority of tax institutions to enforce the law and ensuring citizens are protected from overreach.
The correct amount of tax ought to be collected through fair dispute resolution processes. Most importantly, we must curb unchecked powers to intimidate and oppress.
It's time for a Taxpayer Bill of Rights. Please support the Taxpayer Fairness campaign that seeks to bring about legislative changes so that no one else has to suffer from abuse of power by the state. Read the one-page brief here.