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HMRC powers are “a tax on justice” says House of Lords report

A House of Lords report has warned that greater powers given to HMRC to tackle tax avoidance and evasion are undermining law and justice.

The Economic Home Affairs Committee said HMRC has been granted disproportionate powers, and referred to the resulting high penalties as “a tax on justice”.

The committee has demanded a review of the oversight of HMRC and its powers.

The committee’s chairman, Lord Forsyth of Drumlean, said: “HMRC is right to tackle tax evasion and aggressive tax avoidance. However, a careful balance must be struck between clamping down and treating taxpayers fairly.

“Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect”.

The 2019 loan charge

The report also warned that some of HMRC’s powers “disproportionately affect” unrepresented and lower income taxpayers.

In particular the committee heard some “disturbing evidence” on HMRC’s loan charge, a new fee will is being introduced in April 2019 to tackle what HMRC calls “disguised remuneration schemes”.

Under these schemes, workers were paid by way of a loan, an arrangement that was intended to avoid tax and NIC.

There has been criticism of the fact that the charge can be applied retrospectively, which could impact people who may not have been aware that they were at risk of falling foul of tax rules.

The House of Lords report recommends that HMRC should urgently review all loan charge cases where the only remaining consideration is the individual’s ability to pay, and also establish a dedicated helpline to give advice and support to those affected.

What HMRC says

A government spokesman hit back against the findings of the report, responding:

“We’ve taken unprecedented action to crack down on avoidance and evasion, making sure people pay their fair share, and it uses them responsibly and subject to appropriate checks and balances.

“On the loan charge in particular, it is important to bear in mind that disguised remuneration schemes are aggressive tax avoidance structures that allowed some people to avoid the taxes that Parliament requires them to pay.”

HMRC also pointed out that it already has a helpline for those who may be facing a loan charge on 03000 534 226 and also provides online guidance.

FCSA welcomes Lords report

The FCSA was positive about the attention the report brings to the scourge of tax avoidance schemes, particularly loan schemes. Their CEO Julia Kermode said:

“We welcome the spotlight that the Lords report has shone on HMRC, the loan charge and tax avoidance schemes as it is essential to increase people’s awareness of these. Many contractors have been falsely lured into these tax avoidance schemes unwittingly and their livelihoods are being put at risk.”

“The Criminal Finances Act (CFA) makes companies including recruitment firms criminally liable if they fail to prevent tax evasion and prosecution could lead to criminal conviction and unlimited fines. In the case of loan schemes, recruitment agencies have a responsibility to ensure that they are not unwittingly recommending such schemes to their workers otherwise the business could be criminally liable for failing to prevent tax evasion.”

“This is particularly important right now, in light of the proliferation of tax avoidance schemes that are popping up and capitalising on the IR35 changes in the public sector, and recruiters must ensure that their supply chain is not facilitating tax avoidance. Quite simply, undertaking detailed due diligence on suppliers is essential, not a luxury.”

Click here for more information on the loan charge