Following on from a spurt of debates, the most notable of which was secured by Steve Baker MP to contest the 2019 Loan Charge, the House of Lords conducted an investigation into just how HMRC is using its powers.
HMRC has been granted increasing powers in recent years to tackle tax avoidance and evasion but has frequently been criticised for being too aggressive in its approach.
The report ultimately recommends that HMRC’s powers should be reviewed and managed. The Committee also recommends that Parliament considers how it can improve the scrutiny of powers being given to HMRC.
In short, HMRC should be held accountable for its treatment of taxpayers.
Draconian Tax Collection
Whilst all of the chapters in the report detail HMRC’s often draconian approach to tax collection, Chapter 4 focuses on the most frequently raised issue in response to the Committee’s call for evidence - the loan charge.
Described as 'retrospective in its effect’, the official findings conclude: ‘The consequential impact of the loan charge and HMRC’s handling of it for taxpayers such as the cohort described above has been devastating. Ruth Stanier commented “we will deal with cases appropriately and sympathetically” but this was not the experience of many witnesses. Suicidal feelings were reported. One witness called their situation “a living hell”.’
Lord Forsyth of Drumlean spoke strongly against HMRC’s loan charge proposition, stating that it’s ‘devastating the lives of middle and lower income individuals’. He went on to conclude: ‘Since 2012, perhaps due to reduced resources, HMRC has been granted some broad, disproportionate powers without effective taxpayer safeguards. High penalties, designed to deter some taxpayers from continuing appeals against tax liabilities, are a tax on justice.’
The loan charge, which will affect thousands of contractors across the country, has also been ineptly advertised. HMRC maintains that it posted a notice online about the legislation, yet refrained from contacting those involved in the hidden remuneration schemes directly - despite knowing which taxpayers and employers were using schemes in many cases. This lack of action and accessible information has inflicted anguish on many.
Hundreds of contactors are still, even now, unaware of the legislation, the mammoth tax bill that could be looming and their options in the event of such a bill.
In a statement concerning IR35 and the loan charge's effects on NHS staff, Dr Iain Campbell has said: “HMRC have gone rogue and are a law unto themselves. The now infamous recorded webinar [where NHS management were encouraged by Mark Frampton to blanket determine staff as inside IR35 without appropriate assessment] with numerous NHS trusts we hold shows clear misrepresentation of the case law.'
The House of Lords has implored HMRC review all outstanding loan charge cases where the individual is struggling to pay as well as establish a helpline to offer advice and support to those affected. The deadline for this action is ‘well in advance of the loan charge coming into effect in April 2019’.
The chapter concludes that HMRC is undermining the rule of law, at least as far as the loan charge legislation is concerned. It recommends the following actions as a matter of urgency:
- That the loan charge legislation is amended to exclude from the charge loans made in years where taxpayers disclosed their participation in these schemes to HMRC or which would otherwise have been ‘closed’.
- That HMRC urgently reviews all loan charge cases where the only remaining consideration is the individual’s ability to pay.
- That HMRC establishes a dedicated helpline to give those affected by the loan charge advice and support.
- That HMRC makes a declaration, in a clear and accessible public statement, as soon as it begins investigating a potential tax avoidance scheme. Such a declaration should be targeted at those most likely to be affected by the scheme in question.
- HMRC should also notify a taxpayer that it is investigating an avoidance scheme as soon as possible if that individual declares the scheme on their tax return.
Another strong recommendation from the report is the withdrawal of clauses 79 and 80 of the Finance Bill. These clauses would allow HMRC 12 years to assess offshore income tax, capital gains tax and inheritance tax.
The report states that ‘HMRC seem to assume that individuals with overseas accounts are wealthy and sophisticated people. In fact, many are elderly people on low incomes who have small amounts of either taxed interest from foreign bank accounts or foreign pensions.’
Chapter titles alone clearly demonstrate HMRC’s lack of empathy and compassion. Subjects such as ‘Taxpayer safeguards and access to justice (p.30)’ and ‘Reviewing HMRC’s powers and accountability (p.48)’ are evidence of HMRC’s ‘guilty before innocent’ treatment of the taxpayer. It is exactly this attitude, displayed time and time again, that the House of Lords is now working to subvert.
It's also worth bearing in mind that whilst HMRC has no legal obligation to follow the advice given by the House of Lords, historically the changes suggested have always been made. It presents a small comfort at the very least for those contractors impacted by IR35 and the loan charge.
If you have any concerns about the loan charge or would like to find out more, please visit the Loan Charge Action Group here.
Read the full report here.