David Davis Wants To Change The Law To Stop People Being Hit With Historic Tax Demands
Exclusive: "Sort this out properly or we will sort it out for you," the former minister warned Boris Johnson.
Former cabinet minister David Davis has warned the government he will attempt to force them to stop "retrospectively" taxing people under the controversial loan charge policy, saying: "Sort this out properly or we will sort it out for you."
In an interview with BuzzFeed News, the veteran Tory MP said he wanted to change the law to make sure people would not face life-altering tax demands going back years. He will force the matter in the upcoming Finance Bill, which enacts this year's Budget.
More than 200 MPs, including many Conservatives, have called on the government to suspend the policy. They will first pile pressure on ministers in a debate in the House of Commons on Thursday, before turning to legislation in the next few weeks.
Davis said the issue was one of "natural justice" and the government could easily afford to put it right. "When we won the election, Boris [Johnson] said 'you only loaned us your votes, we need to earn them'," he said. "Well, one way to earn them is to actually correct the miscarriages of justice, correct the proper concerns that people have."
The loan charge policy — which has been linked to several suicides — saw around 50,000 freelancers facing huge demands for tax going back up to 20 years. The government said these people had avoided tax by using loan schemes, now called “disguised remuneration schemes”, to be paid.
But the reality is more complex: Many workers were assured by accountants at the time that what they were doing was legal and submitted tax returns year after year with no comeback from HMRC.
The government made changes to the policy following a review in December by Sir Amyas Morse, former chief of the National Audit Office; mainly that the loan charge would only apply to people who used the schemes after 2010 and wouldn’t go back 20 years as before.
This, however, is still seen as a retrospective measure, and some 40,000 people will still be affected. Davis wants to end the concept of retrospective taxation altogether — and if that cannot be done, he wants the loan charge to only apply after 2017.
Davis said the review was "nonsense" and that Morse had been trying to keep everyone happy: "Well of course it hasn’t."
"Look, in every tax arrangement there will be somebody who plays fast and loose but the vast majority of people caught by the loan charge are ordinary decent people," Davis said.
"They’re not bankers and city slickers who can afford massive accountancy bills to deal with their affairs — they are the locum nurse, the contract worker, the ordinary person who was told this is the only way you’re going to get paid."
He said that ultimately the policy was the result of the government giving a lot more power to HM Revenue and Customs (HMRC) over the years, which was "constitutionally wrong".
"Tax law is pretty much the only law in the British constitution in which you are guilty until proven innocent," he said. "If you are a small player, a small business or a contractor — you are completely outmatched by the forces of government.
"One of our great constitutional principles is that you know the rules, they’re not retrospective, nobody can reinterpret them after the event. That all goes out of the window.
"And I think we’ll have to revisit that and say under no circumstances will you be allowed retrospective matters in the future, under no circumstances will you be allowed to rewrite the rules and have an act in 2017 that applies all the way back into the 2000s."
Davis, who served as Brexit secretary from 2016 to 2018, said ditching the policy would cost a "tiny" amount in the context of last week's Budget but make a huge difference to people's lives.
"When you read about the people committing suicide and their families talking about it, you can see the torture they’re going through," he said. "People on their pensions, close to their pensions, suddenly being told they have to find tens of thousands of pounds, even £100,000.
"I would choke and I’m a comparatively well-off person, so somebody who’s had an ordinary career, hasn’t earned enough to save every much, maybe raised a family, spent money doing that, all the things we want them to do — and then they suddenly find, the tax authority comes along and says 'We want that money please. Because we made a mistake.'"
Davis pointed out that before he was PM, Boris Johnson had been among the Tory backbenchers calling on the government to rethink its loan charge policy because he realised the impact on his constituents.
"We haven’t got to a point yet where I’m going to demand a meeting with the prime minister but that may come," he said.
He said Treasury minister Jesse Norman was also wrong to describe people who used the loan schemes as serial tax avoiders who enjoyed luxurious lifestyles off the back of law-abiding taxpayers.
"There may be one or two people like that but the trouble is you don’t punish 50,000 people for the misdemeanours of a small number," he said. "I feel a smidgen of sympathy for Treasury ministers because these are all hospital passes for them, they’re told what they can say, but I’m afraid he’s wrong on this."
Davis also raised concerns about Mel Stride, the former Treasury minister who drove through the loan charge, now chairing the Treasury select committee: "I don’t generally speaking approve of ministers chairing committees that mark their own homework."
A Treasury spokesperson said: "The loan charge is designed to tackle tax avoidance schemes where individuals are paid through loans which they never have to repay.
"The Morse review was clear that the loan charge should only apply to loans entered into after 9 December 2010. The government accepted this recommendation.
"The loan charge is not retrospective as it is a new charge on disguised remuneration loan balances outstanding at 5 April 2019."