The Financial Secretary to the Treasury (Mel Stride)
I welcome the return of this debate, which was so interestingly interrupted by rain—I think that is about the only matter raised for which I have not been blamed at some point, as it was an act of God. I congratulate my hon. Friend the Member for Aberdeen South (Ross Thomson) on securing the debate, and I thank all those who have participated, both today and last week.
Perhaps I can try to find the one element of consensus that unites Members on both sides of the House. Most speakers have referred to the fact that they have no time for aggressive and contrived tax avoidance, and they are right. Every amount of tax avoided in such a way means more tax for other taxpayers to find, or less funding for our vital public services.
Mr Shailesh Vara (North West Cambridgeshire) (Con)
Will the Minister give way?
Mel Stride
I am afraid I will not. I want to make progress, as there is a lot to cover and little time.
For the benefit of the House, let me set out the heart of how these schemes work, so that we are clear on that point. An employer can engage an employee and pay them in the normal way, by way of earnings, in which case national insurance for the employer and the employee is due. Income tax must also be paid by the employee. Alternatively, they can use a loan scheme, which generally works like this: instead of the employer paying the employee in the way I have described, money is sent out to a low or no-tax tax haven, and placed in a trust. That money then comes from the trust back to the United Kingdom, where it is treated as a loan, even though there is no intention of ever settling that loan or paying it off. Because that money it is treated as a loan, it is claimed that it does not incur any national insurance or income tax because it is not earnings.
When confronted with the reality of how these schemes work, most people would say that that is not right. That brings me on to one of the most commonly held misconceptions about these schemes and the loan charge, which is that the loan charge is retrospective. There was never a time in the history of our country where the model for payment that I have just outlined has ever been correct within the tax rules of any previous year. That is a simple fact.
Mel Stride
I will not give way just yet. My second point is that the very nature of this means of payment, of tax avoidance, is that it involves a loan that is still outstanding—those loans are still outstanding today, at this very moment, for any schemes that still persist. It is a simple fact that most people, including the 99.8% of the tax-paying public who did not go anywhere near these schemes, would have concluded that if something looked too good to be true, it probably was too good to be true.
Colin Clark (Gordon) (Con)
The Minister is generous in giving way. In my constituency, 140 people are affected, largely in the oil and gas sector. Oil and gas employers encouraged people to enter these schemes. Does the Minister agree that companies in that sector should be held to account, as should employers and the people who sold the schemes?
Mel Stride
My hon. Friend is entirely right. I will come on, in the limited time I have, to deal with both employers and promoters, as those are very important aspects too.
When it comes to retrospection the other important point is that, contrary to the suggestion many right hon. and hon. Members have made that this issue has just suddenly appeared and HMRC has just started to address these scheme, it has been taken through the courts over countless years. In 2004, Dawn Primarolo, who was referred to earlier in this debate, was instrumental in bringing in the DOTAS legislation upon which recent cases have been concluded in HMRC’s favour. There has been a concerted effort by HMRC over many, many years to clamp down on these particular arrangements.
Some of the other misinformation includes the idea that thousands upon thousands of taxpayers are about to be made bankrupt. HMRC very, very rarely has a situation where somebody is placed in bankruptcy. That is not right for the individual and it is not right for our tax collecting authority. In fact, my hon. Friend the Member for Mole Valley (Sir Paul Beresford) gave several examples last week of where he had accompanied his constituents and got involved with their tax affairs and their dealings with HMRC. In each case, as he was able to state, a fair and reasonable settlement was entered into. That is the main thrust of HMRC’s approach.
It has also been suggested that people will lose their home as a consequence of the loan charge. It could not be clearer: HMRC has publicly stated that nobody will lose their primary residence as a consequence of settling their loan charge liability. On the point my hon. Friend the Member for Gordon (Colin Clark) raised about employers and individuals, it has been assumed widely in this debate that the vast majority of those impacted by these measures are individuals. That is not the case. Of the 6,000 settlements to date and the £1 billion that has been brought in, 85% by value has come from employers, not employees. In the first instance, HMRC will go to the employer, not the employee.
The issue of promoters is extremely important and, quite rightly, a number of right hon. and hon. Members have raised it. I want to make it clear that HMRC is cracking down on the unscrupulous promoters who sell these schemes. In fact, it is currently investigating more than 100 promoters and others involved in the promotion of tax avoidance. That includes promoters of disguised remuneration schemes. In recent years, HMRC has also litigated a number of cases of failure to disclose under DOTAS, which came in in 2004—not recently—and several recent decisions in cases on disguised remuneration have been found in HMRC’s favour. HMRC has also made successful complaints to the Advertising Standards Authority in relation to DR schemes to stop promoters making misleading claims about the arrangements they are selling. Just two weeks ago, HMRC announced that it had won a legal case against a loan scheme avoidance promoter, Hyrax Resourcing, which will help HMRC to collect over £40 million in unpaid tax. For the reasons I have set out, it would not be right to delay these arrangements.
Let me turn now to two particularly important issues that many Members have raised, first on the affordability of payment arrangements. Let me be very clear: it is never the intention of HMRC to bankrupt anyone who comes forward in good faith to agree a manageable payment plan. I can confirm that HMRC is authorised to agree tailored repayment plans for those affected by the loan charge based on ability to pay. Where tax is payable under self-assessment, payment will of course not be due until January 2020. There is also no maximum repayment period, and plans of 10 years or more can be put in place where required. Further, I can announce today that HMRC is now forming a dedicated team focused solely on agreeing these manageable payment arrangements for those due to pay the tax they owe by way of the loan charge.
Mel Stride
I have no time, I’m sorry.
The second very important matter I would like to address is the interaction between vulnerable people and HMRC regarding disguised remuneration and the loan charge, including where there are mental health issues. Let me make it clear that wherever HMRC is engaging with vulnerable people, it will do everything it can to ensure that they have all the support they need. This support includes a helpline that is dedicated solely to looking after loan charge customers, with a team fully trained to identify those who may be vulnerable and to provide appropriate support. Where necessary, HMRC will always refer individuals to the right external sources of support.
Mel Stride
I have little time and I must cover the ground. HMRC also has a vulnerable customers team available to provide specialist, one-to-one support for vulnerable customers in need of it. Today, I can confirm that HMRC will be expanding its specialist service for customers with additional needs so that it will include anyone who finds their tax affairs under scrutiny. As we roll out that additional support, we will start with those affected by the loan charge as our first priority.
I appreciate that facing any tax bill is unwelcome, but it is only right that we deal with disguised remuneration. When we fail to do so, we are effectively saying to the 99.8% of taxpayers who have not been involved in these schemes that we expect them to pay more, and we deny our vital public services—our nurses, teachers, doctors, police and many others—the funding that they deserve.