HMRC CEO claims email querying legal basis for loan charge ‘overplayed’ at committee hearing

Probing the problematic email

During the Economic Affairs Committee hearing on Thursday 15 July, Harra was asked again to account for the contents of the January 2019 email, where he appears to call into question the legal basis for the policy.

Harra told the Committee the contents of the email had been “overplayed” because HMRC was clear on the legal arguments at the time for taxing disguised remuneration users, in the wake of the Rangers case.

“I did feel that we needed to be more proactive in refuting what was being said about HMRC and about the basis for what we were doing,” he said, during the session.

“At the time I was frustrated that misinformation really was going unchallenged and HMRC’s views were not cutting through the public discourse.

“Specifically, in relation to that email, I felt that for my appearance at the Treasury Select Committee, I hadn’t been given the briefing that I felt I needed in order to make those points,” he said. “So that’s really what I was referring to.”

Past criticism

Committee member Lord Forsyth then asked about past criticism directed at HMRC that it overstates the importance of the Rangers case in its enforcement of the loan charge.

Harra said he rejected that viewpoint, and claimed anyone who does dispute HMRC’s view that these loans are taxable has the right to challenge its stance at tribunal, and that there are cases going through the courts with that in mind at the moment, he continued.

“Our [past] approach [to addressing disguised remuneration] was to try and litigate cases to establish what the legal position was. That took quite a long time, and it wasn’t until the 2017 decision of the Supreme Court that we got that precedent with Rangers, which did say that these payments are taxable and these schemes do not work to avoid tax,” he said.

“The facts of [every case] are not all the same, and at different stages the law has been different as well, so it’s not a straightforward thing to explain. But, nevertheless, I did feel that we ought to be defending ourselves more in the discourse than we were at the time,” he added.

Another member of the committee, Lord Bridges, then interjected to query a point raised during the Morse review of the loan charge, about whether the legal stance on using disguised remuneration schemes has always been clear to taxpayers, to which Harra admitted it had not.

As proof of that Harra, pointed to the first iteration of the loan charge policy, which targeted people who had joined loan schemes as far back as April 1999. The Morse review, however, advised the government to trim 11 years off the off the original 20-year look-back period for the policy on the basis that the law on using loan schemes was not made clear until December 2010, with the passing of the 2011 Finance Bill.

“I will accept for a significant period the law was not clear, that’s why we are litigating and why we are still litigating. HMRC was clear that we had a legal basis for challenging disguised remuneration schemes,” Harra said. “I’m not claiming that the law was always clear. It’s a very complex area.”

HMRC “embarrassed”

Steve Packham, spokesperson for the Loan Charge Action Group (LCAG) campaigners, said the answers Harra gave during the session suggest HMRC is “acutely embarrassed” at the contents of the FOI emails.

“The members of the Committee were right to press Jim Harra on his email where he clearly admits that he couldn’t find legal analysis to back up HMRC’s strategy of pursuing individuals and [the committee] forced an admission that HMRC have no such opinion,” Harra added.

“Committee members were right to point that out that if the law was not clear even to HMRC, it was not clear for ordinary people and certainly not clear enough to justify pursuing individuals in this life-ruining way.”

Speaking to Computer Weekly, tax barrister Keith Gordon seemed similarly unconvinced by the response the committee received to its questions.

“Jim Harra’s response was quite extraordinary. He explained the difficulty as the fact that each case must be looked at separately, on its own facts and based on the particular set of laws in place at the time. However, if things were so difficult and no single legal opinion could be given, why would Jim Harra have expected to obtain such an opinion?”

He added: “More importantly, all HMRC briefings about these arrangements have treated these schemes and the circumstances behind them as identical. Indeed the loan charge policy is specifically a single response to cover what Harra is now suggesting is a wide range of different types of case.”

Loan charge exposed

Meanwhile, Dave Chaplin, CEO of contracting authority ContractorCalculator, said the session has succeeded in “fully exposing” the loan charge policy as a “highly damaging retrospective tax” designed to “bulldoze through longstanding taxpayer protections”.

 “[Its] sending thousands of victims of unscrupulous operators into bankruptcy, and [its] all forced through parliament by HMRC and ministers based on misleading information. It is a massive scandal of its own making,” he said.

“There’s a saying – when you’re in a hole, stop digging. HMRC continue to dig, but today finally hit the concrete floor of incontrovertible facts – that the loan charge breaches the rule of law.”

Computer Weekly contacted HMRC for a response to LCAG, Gordon and Chaplin's comments on Harra’s appearance during the session, and received the following statement: “We encourage any customers who are worried about paying their loan charge liability to please contact us and we will be able to help them. We have been clear that we will work with customers to enter manageable payment plans to spread their tax liability and ensure that they are affordable.”