HMRC and Treasury accused of ‘direct interference’ in independent loan charge review

The independent Morse Review into the government’s controversial disguised remuneration policy was subject to outside interference by HM Revenue & Customs and HM Treasury, claims a report by the Loan Charge All-Party Parliamentary Group (APPG).

The 223-strong group of cross-party MPs claims in the report to be in receipt of “internal documentation” gathered through Freedom of Information (FOI) requests, that it claims show that “direct interference” from HMRC and the Treasury occurred in the lead-up to the Morse Review into the government’s loan charge policy being published in December 2019.

“[The documentation] also clearly shows the review fails basic tests of what would constitute an independent review into a government policy,” says the 16-page Loan Charge APPG report.

“The information exposes a clear attempt by HMRC and the Treasury to direct the review from the outset, seeking to influence the choice of ‘independent experts’ used to advise the review by suggesting the review avoid those who had appeared in front of select committees (most of whom had been critical of HMRC and of the loan charge), and that HMRC then sought to change the report before publication.”

The independent review, overseen by former National Audit Office (NAO) comptroller Sir Amyas Morse, set out to ascertain whether the loan charge policy was the most appropriate way for the government to clamp down on people who participated in loan-based remuneration schemes during the 20-year period to 5 April 2019.

Such schemes see participants remunerated for the work they do in the form of non-taxable loans, in lieu of a conventional salary, with the loans typically taken care of by third-party, offshore employee benefit trusts (EBTs).

In the 2017 Budget, the Treasury introduced the loan charge policy as a means to recoup the tax it claimed scheme participants had avoided paying, on the basis that the loans were never intended to be repaid, so should be reclassified as income and taxed accordingly.

The tax owed is known as a loan charge, and for many individuals caught by the policy, including thousands of IT contractors, the amounts being sought from them are life-changing.

The Morse Review concluded in December 2019 that the look-back period for the loan charge policy should be effectively halved, on the basis that the law on participating in loan remuneration schemes “became clear” from 2010 onwards.  

This conclusion has been hotly contested by tax experts and scheme participants since the Morse Review was published. It was also criticised several months later by the Loan Charge APPG, which went public with its suspicions that the review’s findings were based on a potentially skewed interpretation of the evidence supplied to the review by various tax experts.

In its most recent report, the Loan Charge APPG goes on to link the “flawed conclusions” of the Morse Review to the interference from HMRC and HM Treasury that it claims to have uncovered.

“The APPG examined the Morse Review report in depth and exposed the clear flaws in the justification for the central conclusion of the review that the “law was clear” from 2010, when experts themselves cannot agree on that point,” says the APPG report.

“It seems likely that this flawed conclusion is a direct result of the interference now exposed and a predetermined desire for a ‘compromise’ outcome. This further undermines what many experts and parliamentarians had already said was a flawed conclusion.”

The report also repeats details of the APPG’s past misgivings over why individuals working for HMRC and the Treasury were asked to assist with compiling the Morse Review, given its billing as an independent examination of a policy that both departments have a hand in overseeing.

The Morse Review’s independence is further undermined by the responses it received to a couple of FOI requests it lodged, which resulted in the disclosure of emails exchanged between HMRC, HM Treasury and the Morse Review team, says the Loan Charge APPG. 

It further claims that the responses expose that an “improperly close working relationship” existed between all three parties, and suggests that HMRC and the Treasury sought to “influence the review from the start” until the final version of the review dropped in December 2019.

As evidence of this point, the report claims the emails uncovered collusion between the Treasury, the review team and the chancellor’s press secretary about how to deal with the press.

“The content, tone and direct requests made by HMRC to the Morse Review secretariat expose the interference with the Morse Review by HMRC and the Treasury before it began, during its operation and after the report was finished, but prior to its publication,” says the report.

It adds:  “The review secretariat team afforded HMRC and the Treasury privileged early access to the report’s conclusions. This early access was not extended to other interested parties, who were not given any opportunity to raise concerns on its factual accuracy.”

In its conclusions, the Loan Charge APPG report states that the Morse Review “fails the basic tests of what would constitute an independent review” because of the “inappropriate influence, direction and direct involvement” that HMRC and the Treasury had in its creation.

It adds: “The clear conclusion to be drawn is that the Morse Review is compromised and its conclusions discredited. It came to a fundamentally flawed conclusion to remove part of the retrospection of the loan charge, but to leave it in place going back to 2010, leaving many people facing huge bills for tax that has never been legally proven to be due from them.”

As a result, the APPG is now calling for a fresh independent inquiry into the policy, which it says should be led by an “experienced tax judge” and be more extensive in its scope.

“It must look at the areas that were excluded from, or not examined by, the Morse Review, including an examination of how the loan charge was introduced in the first place (which is still not clear); a full and proper investigation into HMRC’s treatment of individuals, including each case where someone took their own life, and the clear disinformation of HMRC as exposed in numerous reports and communications,” the report concludes.

Computer Weekly contacted both HMRC and HM Treasury for a response to the report, and was told by a spokesperson for the latter that the loan charge review was "fully independent" of  the government. 

“Sir Amyas had complete independence and full discretion over how the review was run, which stakeholders and individuals it engaged with and the content of the final report," the Treasury spokesperson said. 

While the Loan Charge APPG report states the group's criticism of the Morse Review does not extend to Sir Amyas himself, he has also released a statement in response, in which he refutes any suggestion that his findings were influenced in anyway by the government. 

“My independent review of the Loan Charge represented my own judgement following the evidence that I heard – including over 700 individual impact statements. My 20 recommendations included the need for both significant changes to the Loan Charge, and to HMRC’s future approach for combatting tax avoidance. My conclusions speak for themselves, and show that I was independent of government," said Morse, in his statement. 

“Any suggestion that I was (or could have been) unduly influenced by the civil servants who supported me ignores that the report is my own, and my ten years of experience at the National Audit Office in holding government to account.”