There’s something about the 2019 Loan charge that’s really been bugging me for a while now:
it’s the “promoter” aspect of loan schemes recently touted by some MPs. The very same MPs are now suggesting to victims suing the promoters. Yet it’s those MPs that have approved the introduction of the 2019 Loan charge in Parliament, which effectively amounts to a change of legislation with retro-active effect going back 20 years. This was recently confirmed both by the House of Lords[1] as well as by the evidence given to House of Commons’ Treasury Select Committee[2]. So, both houses agree on the retrospective nature of the charge.

In addition, we’ve seen a change in narrative around the legal nature of such schemes which has been conflated by HMRC and Treasury following recent outcries by loan charge victims who were, at one point characterised as “criminals” by the likes of Philip Hammond and Mel Stride. Bearing in mind, these two should know much better and be able to articulate the legal nature of those loan schemes in question, they have greatly confused the whole debate by describing loan schemes as “illegal avoidance” (implicitly evasion, which is a criminal offence) and “not legal”. In effect, victims have been criminalised by official representatives of both HMRC and HMT. That, by itself, is deeply disturbing.

Whilst I am not a lawyer, let’s be very clear here: until a court has found such scheme to be illegal, i.e. against the law, one needs to be very careful in characterising scheme users in such way, i.e. as criminals. In most cases, to this date, these schemes have NOT been proven in court to even be inefficient or “not effective”.  And, at least in theory, most of these actually do work as they have not been proven to not to in practiceSo what exactly do the MPs suggest we sue the promoters for? Admittedly if they hadn’t declared the risk and stated HMRC approved then there is a obvious misspelling option.  Otherwise attempting to sue somebody for a fully legal idea is quite frankly crazy. In fact, most schemes are still (legally) offered to this day with a proliferation of newer schemes since the introduction of the public sector IR35 reforms in April 2017. If anything, we will likely see many more of those with forthcoming private sector IR35 reforms to come into force in April 2020. One may ask, is this really what Parliament intended?

There is even a price comparison website specifically focussed on available umbrella schemes. Anyone, and lately often nurses and locum GPs who were asked to change their modus operandi due to the fallout of the private sector off-payroll reforms last year, would be able to this day to go on such website and signing up with a new scheme. And all of it appears – in fact it is – completely legal. Until a court proves it is not.  To be precise, everything which is not forbidden is allowed.

That said, despite HMRC and HM Treasury love for painting a nebulous picture that umbrella loan scheme “never worked” and – the latest fad – “are not effective”, it is merely HMRC’s opinion. Now, let’s remind ourselves that an opinion is merely “a view or judgement formed about something, not necessarily based on fact or knowledge”.  In a court, that particularly opinion would have not have a leg to stand on. Everyone has an opinion about everything. But that doesn’t mean it would hold up in court. It really is that simple.

And, in fact, there are good examples where the court – rightly so – upheld the rule of law. The often referred to Rangers FC judgment is a good example.  The court in this instance found in essence that a “loan is a loan”. And there are other examples where schemes were found to be “effective” and work, to use HMRC’s term.

So, one could argue, there’s a functioning Rule of Law that determines whether schemes are effective and have worked and that decision is ultimately made in the court.  Indeed many could do well to remember that the last word on tax law is not HMRC but the courts.  HMRC are simply a administrative department in existence for the collection of tax.  From a mis-selling angle, the only real aspect then could be that – to this date and since Parliament was formed in 1707 – retrospective changes of legislation are not reflective of what the UK democracy represents and likely not factored into the advice given by professional advisors. If some MPs are now suggesting to their constituents that it should have been part of the professional advisors’ pre-sales risk assessment, that would also indicate that the very same MPs are, in principle, supporting retrospective law changes including 20yrs retrospective taxation such as the loan charge, which is effectively “undermining the Rule of Law”[3].

Further, the “2019 Loan charge fiasco”, as one MP member of the UK Treasury Select Committee has recently aptly called it, has also not gone unnoticed internationally. In fact, no other than the United Nations[1] suggested that “the detrimental impact on both national economies and international trade caused by retroactive legislation that is written into law now or in the near future yet taking effect from a date well in the past (i.e. retrospective legislation in the United Kingdom, going back 20 years).” The United Nations then continues to say that “such legislation undermines any certainty in and predictability of the legal system in particular and dilutes trust into the Westminster parliamentary system in general.”

The United Nations memo concludes with the recommendation to “raising global governments’ awareness of the intrinsic link between certainty of legislature and international business’; sentiment towards the same. […] further recommends establishing a climate of legislative certainty by staying clear of any retroactive legislation altogether.”

In conclusion, if anything, loan schemes largely mis-sold democracy.  Our representatives in Parliament have now the chance to express “what Parliament intended” with the 2019 Loan charge and their answers are simple and binary: it’s either that retrospective legislation, such as the loan charge, is perfectly fine but undermines both undermines democracy and the Rule of Law as well as leaving a massive clout of uncertainty hanging over the UK.  Or, they can all work towards amending the 2018 Finance Bill, make the 2019 Loan Charge prospective (ideally, from 2019 onwards, otherwise it really isn’t that) thereby restoring both constituents’ trust and certainty – and be proud Parliamentarians for upholding democracy.






[4] Source: “The Powers of HMRC: Treating Taxpayers Fairly”, House of Lords Report, 4th December 2018, Appendix 2, #DFC0060, No. 26 - 28