FOI release

Independent Loan Charge Review – summary of evidence

Published 23 April 2020

Introduction and explanation of how information was provided to review team

HM Treasury (HMT) and HM Revenue and Customs (HMRC) have released the evidence that they provided to Sir Amyas Morse and his review team as part of the Independent Loan Charge Review, which was published in December 2019.

To ensure the material can be easily read we have presented the information as one continuous and sequential document. This guidance aims to help readers through the large amount of evidence and explain or – in a very small number of cases, given the very large quantity of data provided - correct it. These corrections are highlighted in order to be transparent, but the government does not believe the original information had a material effect on the tone of the Review or its recommendations.

HMT and HMRC provided a great deal of information to the Review. However, this was not the only source of information which informed the Review. Sir Amyas set out in the Review that he reviewed submissions from 37 tax and legal experts, over 700 personal testimonies and met with a number of stakeholders named in Annex B of his report. HMRC was not party to the evidence provided by other stakeholders.

While conducting the Review, Sir Amyas made a number of information requests to HMT and HMRC to aid his enquiries, in line with the terms of reference of the Review. There were also follow up requests and requests for clarification on some of the data submitted.

The information provided to the Review was a combination of historical data and the latest available data at the time of the requests. However, many statistics will change over time. For example, the number of settlements will change as more settlements are completed, and underlying policy costings and forecasts can be re-visited at fiscal events.

From Budget 2016 and Autumn Statement 2016, HMRC estimated that the split of revenue yield between employers and individuals was 75:25. Updated analysis in late 2019 indicated a lower estimate of 65% to 70% from employers. However, analysis done for Budget 2020, which took account of both newer data and the estimated effects of implementing the recommendations of the Independent Loan Charge Review, indicated that the estimated split of revenue yield between employers and individuals had shifted the balance back towards employers, and this estimate has returned to around 75:25.

In line with HMRC’s statutory duty to safeguard taxpayer confidentiality, only aggregated and anonymised data were provided to the Review. Where there was the potential to identify an individual from the data tables, the information was suppressed.

Summary of the HMRC evidence

Use of disguised remuneration avoidance schemes (section 1)

HMRC set out an overview of the recent history of avoidance and provided information on the number of Disguised Remuneration (DR) schemes in use for the tax years 1998 to 1999 to 2017 to 2018, broken down between individuals and employers and by whether they were existing or new schemes.

The loan charge (sections 2 to 6)

HMRC provided an overview of the scope of the loan charge and how its assessment differs between companies and individuals. HMRC gave an explanation of how income should normally be taxed and gave further details of how the loan charge was designed. HMRC also provided information on the interaction with other areas such as trusts, Corporation Tax and Inheritance Tax.

HMRC provided information on the projected yield, and the methodology used to calculate it, at the time of the 2016 Budget announcement. HMRC also explained the changes in estimated yield between the figures provided at Budget 2016 and Spring Statement 2019.

HMRC provided information on measures introduced prior to the Review. This covers HMRC’s commitment that where it had closed an enquiry without assessing disguised remuneration tax due, it would not pursue the tax under the loan charge in relation to loans made in that year.

HMRC set out the cost of settling compared with paying the loan charge in two example scenarios. Upon reviewing the evidence before release, HMRC identified that the additional cost of paying the loan charge compared to settling under the November 17 terms for Donald and Anita should be £14,242 and £9,257 respectively.

HMRC gave a breakdown of how it calculated the figure of the amount that is still due after the loan charge has been paid. In the two worked examples, HMRC stated that the additional liability is purely late payment interest which is incorrect. Later, HMRC correctly stated the additional liability consists of both income tax and late payment interest.

Disclosure and compliance action (sections 7 to 11)

HMRC provided information on the use of DR schemes and the overall estimated tax at risk from such usage in the tax years 1998 to 1999 to 2017 to 2018.

HMRC provided information on the development of its compliance activity. Information was also provided on the chronology of DR litigation.

In the section about litigation against users of DR, HMRC stated it had issued around 3,200 Follower Notices (FNs) in DR, most as a result of the Rangers decision. Having reviewed the relevant data, HMRC established that this figure was understated and described incorrectly, it should have stated:

HMRC issued around 6,800 FNs to customers who used a DR scheme caught by the loan charge, all were issued as a result of the Rangers judgment.

At the time of the review, a minority of DR schemes were not caught by the loan charge and it follows that not all FNs issued on the back of the Rangers judgment were to schemes caught by the loan charge.

HMRC also stated that around 56% of the 3,200 customers issued with an FN had subsequently settled their use of disguised remuneration. For the 6,800 customers now identified as having been issued with an FN, around 40% have settled.

Impacts on those affected by the loan charge: settlement opportunities and debt collection (sections 12 to 14)

HMRC set out an overview of how it provided settlement opportunities and gave details of the 8,000 settlements reached at the time of the Review submission.

HMRC provided further information to give a more detailed picture of the development of the settlement strategy and the communications sent to employers and individuals. The different settlement terms are published on gov.uk.

HMRC provided details of the incomes of affected individuals by analysing a sample of 1,600 settlements by individuals. This information included worked examples.

HMRC gave information on its debt collection process, the support offered and its policy on time to pay arrangements. HMRC’s approach to Time to Pay is published on gov.uk including how HMRC estimates what an individual can afford to pay. 90% of HMRC’s TTP agreements are completed successfully.

Customer support and new measures (sections 15 to 17)

HMRC provided details of the proactive communications it has issued since 2009. It also provided information about its work with those identified as needing additional support since 2016.

HMRC set out the information given on the development of the communications strategy, for both HMRC and the government in general, in the written Ministerial Statement in 2014.

HMRC also provided information on the revised communications strategy, including the increased engagement with customers who have historical open cases. HMRC also gave information on its efforts to publicise the risks of DR with organisations such as the NHS and the General Medical Council.

Current DR schemes and Promoters

HMRC provided information on the development of the Disclosure Of Tax Avoidance Schemes (DOTAS) legislation. HMRC also provided further information on the Tribunal cases that shaped the policy and highlights the reduction in disclosed promoted schemes. It also set out the continuing strategy to combat such schemes.

HMRC provided information that it has litigated more than 10 promoter businesses for failure to disclose a scheme under DOTAS. After review, this should have read “taken litigation action” against more than 10 promoter businesses.

HMRC also stated it is now focussed on 14 promoters. In fact, HMRC is currently prioritising work on the promoters linked or closely associated to 20 to 30 active promoters, as part of its wider strategy to tackle promoters of tax avoidance.

HMRC stated that it had identified 12 new Disguised Remuneration schemes since April 2019 aimed at individuals and that these new schemes had been used by around 8,000 individuals, over 3,000 of whom were using an avoidance scheme for the first time.

Sir Amyas Morse published these figures in his report, stating ‘8,000 individuals have entered into loan schemes since April 2019’.

This is not correct. Although the 12 schemes and 8,000 individuals were identified since April 2019, some customers will have already been using the schemes in the 2018/2019 and earlier tax years.

This is a result of there being some time from the scheme first being used to HMRC becoming aware of the arrangements and which individuals have used them.

HMRC published its future promoter strategy on 19 March 2020.

Go to section 1 - Use of Disguised Remuneration schemes over time.