Iain Dale

Can’t pay, shouldn’t pay

The self-employed are being hit by unjust demands for back tax they never knew they owed

Can’t pay, shouldn’t pay
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You probably haven’t heard of the loan charge. I hadn’t until a couple of months ago, when I told listeners to my LBC radio show that I would soon be interviewing Mel Stride, the financial secretary to the Treasury. Following this, I was bombarded by texts and emails from something called the Loan Charge Action Group and its many, many sympathisers. I then became acquainted with what might be the next storm to hit the government.

The messages, many of them emotional and some borderline aggressive, told the same story: hundreds of what politicians like to call ‘hardworking families’ were facing unpayable and unjust tax bills as a result of a Treasury U-turn on what previously had been a perfectly legal tax scheme. Freelancers and contractors had been allowed to be paid through an employee benefit trust; the payment was via ‘loans’ that were never repaid. An odd arrangement, to be sure, but it was once accepted and promoted as a legitimate way for the self-employed to reduce income tax. Now, it has been declared a form of tax evasion, and the authorities are seeking to claw back 20 years of what are being regarded as missed payments.

What’s going on? How could this be justified? When I put questions to Mr Stride in my studio, I found him decent and affable, but he provided answers that were entirely unconvincing. It’s not at all clear that the government expected its sudden tax demands to have such an effect. Many self-employed traders are now looking for answers from those who advised them to use these vehicles, based on written guarantees from HMRC that they were legal. But the authorities don’t care if anyone was wrongly advised: they want the money.

And they want it whether or not their targets have it. We’re not talking about a cabal of the rich and famous. Sarah from Maidstone, a locum GP, rang in to my show to say HMRC had demanded £120,000 from her and that she would have to sell her house. This in spite of the NHS requiring her to be on the books of an agency. Mark in Windsor told me he had already had to pay £180,000 and his family were now living in a two--bedroom council flat. Simon in Wealdstone was also facing demands for more than £95,000. He told HMRC that he had been unemployed for a year back in 2001, but had no evidence to prove it. It said it would charge him the average of all the other years, so this poor man was being charged back tax for a year during which he hadn’t even worked. Readers more au fait with the law than I am will no doubt know that we are required to keep financial records for only seven years. Not 20.

For any government to be so ruthlessly pursuing these people would be strange. For a Conservative government to be doing so is perverse, especially as the people we’re talking about ought to be natural Tory voters. Any government should stamp out tax arrangements or loopholes that it deems unacceptable. But to sting people for schemes once known to be perfectly legal, targeting people who declared everything in tax returns that were signed off year-on-year, is blatantly unfair. It surely undermines the very rule of law and international conventions that outlaw retrospective legislation.

Philip Hammond used to understand this. When critiquing a Labour Budget in 2005, he pointed out that ‘a taxpayer is entitled to know with certainty — be it an individual or a multinational corporation — what he may or may not do in planning his tax affairs. He is entitled to expect that his treatment be laid down in statute, not determined by administrative fiat; he is entitled to expect that another taxpayer in similar circumstances will receive treatment similar to his; and he is entitled to be protected from retrospective or retroactive legislation.’ I couldn’t have put it better myself.

It seems clear that the ‘loan charge’ policy — like so many others under this government — was designed without proper scrutiny or any serious assessment of how it would affect, and sometimes ruin, lives.

Some of those involved are desperate, facing losing everything they have worked for. Some will lose their homes. Some may never be able to work (or pay taxes) again. Some have reported feeling suicidal. Already campaigners have blamed the loan charge for one man taking his own life. HMRC has no estimate of how many bankruptcies it will cause, which makes it impossible to predict how much money it will actually raise.

HMRC is now starting to realise the scale of its mistake. It had put it in writing that doctors and nurses wouldn’t be affected, but now it admits that they are. Ministers have stated that they are pursuing the tax advice agencies that promoted this scheme. When asked how many have been prosecuted, HMRC said it didn’t have the answer. I do. It’s a big fat zero. Mr Stride is so unsure of the situation that he has refused on three occasions now to defend the policy to a House of Lords committee. The committee accuses him of a breach of the ministerial code. I’d go further and accuse him of being ‘frit’.

What we need is a backbench rebellion. Many Conservative MPs, lobbied by desperate constituents, are speaking out, and with the Budget legislation coming up there will be the opportunity to change the law. We all know that sorry is the hardest word for politicians and that it’s nigh-on impossible for any minister to admit he or she got it wrong. But the disingenuous and at times preposterous way in which the government is trying to justify a bad policy that was never properly thought through is as unedifying as it is disappointing.

Rather than double down on their mistake, ministers should instead listen to those affected and decide whether they wish to continue their pursuit. There is still time to prevent the serious harm that the loan charge will do to contractors and freelancers and their families, to the wider economy, and to the reputation of the Conservative party.

Iain Dale presents the evening show on LBC radio.