HMRC downplays significance of CEO email ‘questioning’ legal basis of loan charge policy

by Jeremy

HM Revenue & Customs (HMRC) has sought to play down the significance of a private email in which its CEO appears to question the legal footing of the department’s controversial loan charge policy. The email, disclosed as part of a document dump secured through a Freedom of Information (FOI) request, features a series of messages sent by HMRC CEO Jim Harra from January to December 2019 about the department’s ongoing efforts to clampdown on disguised remuneration schemes.

Central to this clampdown is the loan charge policy introduced in November 2019 to enable HMRC to claw back the money it claims contractors avoided paying in the past by opting to have part of their salary paid out to them in the form of a non-taxable loan. The policy has seen thousands of IT contractors receive life-changing.

Six-figure tax bills from HMRC relating to work they did between December 2010 and 5 April 2019, resulting in mass bankruptcies, and it has also been linked to at least seven suicides. One of the emails sent by Harra, who at the time was serving as the department’s deputy CEO, on 31 January 2019 has been seized on by tax law experts and anti-loan charge campaigners as proof of the legal arguments HMRC has repeatedly put forward to justify the policy are unsound.

The individual who submitted the original FOI request is a Loan Charge campaigner who goes by the Twitter handle @FairMinistry. “This is indeed extremely damaging for HMRC, and it destroys the already shaky foundations of the Loan Charge,” they told Computer Weekly. Specifically, HMRC’s view that non-taxable loans paid out in place of a salary to contractors that participated in disguised remuneration (DR) schemes should be treated as income and taxed as such.

Anti-loan charge campaigners

The email in question was sent the day after a Treasury Select Committee hearing, with Harra making a passing reference to the social media response from anti-loan charge campaigners to the event. Setting aside the insults,” he said, there are some “substantive” comments emerging from the online discussion about the hearing that he goes on to share. The main substantive comments are… HMRC persistently claims that DR schemes never worked, but despite allegedly challenging DR schemes for the last 20 years, we have not obtained tribunal/court decisions that back up this claim. In particular, we have not received decisions establishing that individuals are taxable on DR loans as income,” he wrote.

He then follows up on this comment by seemingly detailing his abortive efforts to secure “legal analysis” to back up HMRC’s justification for the policy. In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim with very little success,” wrote Harra. “For yesterday’s hearing, we were initially given a summary of [tax] avoidance wins, some of which seemed to have nothing to do with DR.”

In a statement to Computer Weekly, Loan Charge Action Group (LCAG) spokesperson Steve Packham described the emergence of the email as “highly embarrassing” for HMRC, seeing as it essentially shows its CEO calling the policy’s legal footing into question.    The latest information exposed confirms that senior civil servants and ministers have been dishonest about the loan charge and know full well that it is not based on legal precedent and that it was introduced to allow HMRC to override the rule of law,” he said.

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