Financial Secretary’s Not Totally Honest to House of Commons Regarding 2019 Loan Charge
The Finance Act 2017 had introduced 2019 Loan Charge that has raised a lot of controversies. It is a tax charge on outstanding loans taken through any disguised remuneration (DR) scheme used for tax avoidance.
When Mel Stride, the current Finance Secretary, was asked by the House of Commons to give details about the tax charge, he was clearly not being honest in giving the answers.
In an answer to a question put forward by an MP, Mr. Stride had stated that 2019 Loan Charge was not a retrospective legislation. He further said that the Loan Charge relates to loans that were not legal when they were obtained. In addition, he had said that the purpose of the charge is to ensure that the persons who have taken a loan through a DR scheme pay the right amount of tax.
All of the statements made by the Minister about the loan charge were fallacious.
The 2019 Loan Charge is a retrospective legislation as the charge applies to all loans that were taken since 6 April 1999. It taxes amounts that were not subject to tax in the current year, which would cause financial hardships for thousands of individuals in the UK.
Although the tax is charged in a prospective manner, it has retrospective effects as amounts received in the past are taxed. So, the claim by the Minister that 2019 Loan Charge is ‘not retrospective’ is not correct.
Another erroneous statement made regarding the loan charge is that it is imposed on loans that were taken through schemes that were not legal at the time. The fact of the matter is that there has never been any legislation or tax provision that has deemed loan obtained from an offshore trust as illegal. It was only through the cases of Dextra Accessories Ltd and Sempra Metals Ltd in 2005 and 2007, respectively, that the taxable effect of a loan obtained through offshore trusts was known. A loan contract cannot be deemed illegal if it is not mentioned as illegal in any legislation.
Lastly, Mr. Stride had said that the reason for the 2019 Loan Charge is to ensure that individuals pay the right tax amount. However, the loan charge will consider loan amounts taken in previous years as income in addition to the current year’s income. Taxing amounts collected in the past at a present higher rate will result in individuals paying more than the tax amount originally due.
Therefore, the argument made by the Minister that the 2019 Loan Charge is there to ensure that individuals pay the right tax is wrong.
Individuals should beware of politicians and government officials who use sophistry to gain support of their policies. The fact that the Minister has made inaccurate statements without getting any rebuke from the House of Commons is a cause of great concern.
