Following an extensive evidence gathering exercise, their Lordships have published the latest in a series of reports into the current Finance Bill and its predecessors. This, the fourth report of the session, is particularly damning of Government policy and HMRC’s delivery of it, in dealing with the treatment of taxpayers accused of tax avoidance.
Whilst the 67-page document should be read in full by all stakeholders we summarise below some of the most pertinent recommendations and our analysis of the report.
The findings and recommendations at a glance;
- HMRC are prioritising recovery of tax over justice by targeting individuals not promoters
- The Loan Charge is retrospective and HMRC’s approach to it is called into question
- HMRC should make a public declaration immediately upon investigating a new arrangement
- APN and Follower notice legislation should be amended to provide a right to appeal
- Evidence suggests some HMRC staff fell well below the standard expected under the charter
- HMRC’s lack of resource has rendered it incapable of both protecting taxpayers & recovering tax
- HMRC’s recent approach to taxpayers is increasingly aggressive
WTT, having given evidence to the Committee (link), is entirely in agreement with the conclusions reached and supports, without reservation, the recommendations made in particular, the suggested amendments to the loan charge.
In short “We recommend that the loan charge legislation is amended to exclude from the loan charge loans made in years where taxpayers disclosed their participation.. to HMRC.. or which would otherwise have been closed”. We agree unreservedly.
WTT is impressed and heartened that the weight of evidence we and others in the profession were able to deliver to the inquiry as perhaps the largest independent adviser to contractors who find themselves in jeopardy of financial, physical and emotional harm, has been recognised by their Lordships. The committee has foreseen and reported with clarity and precision the roots of the present problem, the effect it will have and the solutions. WTT endorses all of the recommendations and will continue to press for those identified in the Report as responsible for implementing them, to actually do that.
WTT has always wanted a fair settlement for its clients. Our clients accept that they marginally benefitted from arrangements now viewed as Tax Avoidance and wish to pay their share of any unfair benefit but do not see why it is them – and only them – feeling the weight of an aggressive HMRC. As observed, “..principles are being forgotten in the push to tackle tax avoidance and evasion with fewer HMRC resources -para 47”
If the policy on taxation is for all to be treated fairly, why are all those involved in the use of disguised remuneration schemes, (end clients, intermediaries, promoters) not subject to demands for money that cannot be appealed, assumptions of guilt, retrospection and denial of justice. As their Lordships say “we have seen little evidence of action taken against those who promote disguised remuneration schemes – para 11”
This Report now marks the beginning of a new phase, where HMRC and HM Treasury must abandon their dogmatic approach to taxing contractors, historically and currently, make use of the powers they have rather than claim new, unnecessary levers and show that their claims of treating taxpayers with empathy and compassion are more than empty words designed to tick internal boxes.
The Committee identified that the present situation (a 20-year retrospective tax charge arriving in 122 days), is the result of HMRC as an organisation losing 15% or more of its staff yet being pressured to “maximise tax revenue” whilst adopting an attitude that encourages the harshest of penalties and treatment to even the most minor of perceived offences.
In trying to deliver increasing amounts of money to a voracious Government, short cuts have been taken by H M Treasury and HMRC in making tax policy, often not observing their own procedures. Those policies are delivered with maximum force and minimum notice. Notions of degrees of blame have been ignored and every taxpayer who is accused (not proven) to have been involved in tax avoidance feels the full force of these by being treated as little more than dishonest.
The result is that “HMRC’s approach to the loan charge diverges substantially from the principles in the Powers Review- para 16 and 77”.
Whilst WTT is sure that many HMRC officers feel uncomfortable in executing the wishes of whichever cohort is presently running Counter Avoidance, we see nothing in the evidence offered by Ms Stanier (link) that points to a fairer or healthier position appearing on the horizon. This is perhaps not surprising given the example set by Mr Mel Stride MP, the Minister responsible for HMRC, who declined to appear before their Lordships which was clearly noted- “Given the seriousness of the concerns raised, the public has an interest in ministerial accountability to Parliament – para 6 of Chapter 1”
If the Minister is prepared to disrespect their Lordships in such a manner, then his officials’ approach to taxpayers – shown in this report to be well short of the standard expected and written into their own Charter – is vindicated.
We should also perhaps not be surprised that, as noted in Chapter 4, para 58, “There is some evidence that Parliament did not adequately scrutinise the loan charge”. This was emphasised further by Baroness Noakes in her speech to Parliament recently (link) stating;
“It is clear that the provisions have not been thought out. When the provisions were debated in the other place in Committee, there were approximately two Hansard columns of general commentary by the Financial Secretary and his opposite number on the theme of tax avoidance. The actual legislation was not scrutinised in detail and the impact on the individuals affected was not explored. The upshot was that the provisions found their way into law with ease.”
This failure continues to be addressed by the EDM tabled by Stephen Lloyd MP (link) and the Westminster Hall debate secured by Steve Baker on 20th November (link). These steps go towards rectifying a tax charge slipped past Parliament and implemented by HMRC who saw benefit from not having to administer the appropriate enquiry process and associated litigation.
The Report quite rightly stresses that we expect HMRC to be tough on those who evade tax (a criminal act) but that the lack of a workable definition of avoidance is a problem and one that HMRC “solves” by assuming that all are equally guilty. The presumption of guilt and the burden of proving an absence, i.e. innocence, being placed upon taxpayers is recognised as a perversion of the Powers review that needs to be addressed and corrected.
The Report is extensive and is a model of clarity and common sense. It identifies problems, recommends solutions and strives to provide a fair position on all parties. It exempts, to a degree, HMRC from many of the accusations made against it, blaming fewer people doing more work, without shying away from calling for cultural changes in how they view themselves. It calls for Ministers to fulfil the role they have been appointed to do and to be accountable for and fix the problems.
WTT is energised and encouraged that the message it has been doggedly delivering to all parties for nearly 4 years, has now been endorsed, repeated and given a road map to delivery by their Lordships.
Our clients have acknowledged their role in this and are responsibly seeking a reasonable way to resolve the position. HMRC and HM Treasury have not. They now have the best opportunity they will ever have to resile from the path now exposed and criticised by the Lords and return to where they should be. �