HM Revenue & Customs (HMRC) is seeking feedback on a set of proposals designed to clamp down on the promoters of tax-avoidance schemes that have left tens of thousands of IT contractors saddled with life-changing tax bills.
The tax-collection agency said the proposed legislative changes seek to “strengthen” its existing anti-tax avoidance regimes, and “change the behaviours” of those involved in the promotion and enablement of arrangements that confer a “tax advantage” on participants.
As such, the proposals will enable HMRC to “more effectively” issue stop notices to parties found to be involved in the marketing of tax-avoidance arrangements through its existing Promoters of Tax-Avoidance Scheme (POTAS) rules.
These rules were introduced in 2014 to provide HMRC with a means of addressing the behaviour of promoters it deemed to be at high risk of developing tax avoidance schemes, or encouraging others to participate in them.
The proposals published this week aim to make it easier for HMRC to obtain information about the “enabling of abusive schemes” as soon as they are identified and issue penalties as soon as a tax-avoidance scheme has been defeated at tribunal.
HMRC will also be given, under the proposals, powers to act “quickly and decisively” against promoters that fail to share details of their arrangements under the Disclosure of Tax-Avoidance Scheme (DOTAS).
Under its terms, scheme promoters are advised to register their setups with HMRC so it can ensure the mechanisms they employ to reduce their users’ tax burden do not infringe on the department’s tax policies.
Interested parties have until 15 September 2020 to provide HMRC with their feedback on the proposed changes, which the government previously committed to undertaking during the March 2020 Spring Budget.
Loan charge promoters in HMRC’s crosshairs
The promoters of loan-based remuneration schemes will be among those HMRC is targeting in these proposals. Such schemes see participants receive payment for the work they do in the form of non-taxable loans, instead of a traditional salary, to minimise the amount of employment tax they are expected to pay.
The loan-charge policy was introduced by the UK government in November 2017 as a means of recouping the employment taxes HMRC claims people sought to avoid paying by participating in these arrangements over a 20-year period to 5 April 2019.
The look-back period the loan charge policy covers is, following the publication of an independent review in December 2019, to be imminently cut in half, meaning thousands of people will fall out of its scope.
However, estimates suggest there are still tens of thousands of individuals still affected by the policy, which hinges on HMRC’s view that as these loans were never intended to be repaid they should be reclassified as income and taxed accordingly.
A common criticism of the policy is that it does not take into account the circumstances that may have led to individuals enrolling in these schemes, with Computer Weekly previously reporting on instances whereby contractors claim they were not told they were being paid in loans, for example.
Another recurring criticism levelled at HMRC over its handling of the loan-charge policy is that it is far too focused on penalising the participants of these schemes, rather than the organisations that marketed them as a legal way for contractors to increase their take-home pay.
The proposals are intended to go some way to rectifying that, but the general consensus among the contractors Computer Weekly has spoken to is that the changes HMRC is consulting on go nowhere near far enough.
“I’m shocked at the admissions here that action is needed against promoters. If this is the Treasury’s position, then it is an admission that the taxpayers affected by the Loan Charge are the innocent party. So why are they being targeted?” asked one contractor, who spoke to Computer Weekly on condition of anonymity.
“The Treasury previously defended the fact that the loan charge bypasses the employers and targets the employees [contractors] as being because the employees were culpable.
“There is nothing at all in what I have read [in these proposals] to suggest that any penalties visited on the promoters will be offset against the tax that HMRC seek from the employees/contractors. So the innocent will still be punished and bankrupted by the loan-charge policy.”
Another problem with the proposals, flagged by contractors, is the fact HMRC has confirmed the proposals will be focusing on tackling schemes that are being promoted “on or after” the Royal Assent date for the Finance Bill 2020-21.
This means those involved in promoting schemes during the 11-year look-back period the policy now covers are unlikely to receive much in the way of a comeuppance, unless they are still actively involved in promoting tax-avoidance schemes now.
On this point, HMRC’s own accompanying consultation document acknowledges that “many promoters and enablers have left the avoidance market” now.
Speaking to Computer Weekly on condition of anonymity, the wife of a contractor who is currently embroiled in a loan charge-related dispute with HMRC questions why it has taken so long for the government to take action against those marketing tax-avoidance schemes.
“It should not have taken 10-to-20 years to do something, and to apply a punitive law retrospectively to the victims and not the profiteers is just plain unjust,” she said.
There are many promoters that have since exited the market and closed down their companies, she said, and have pretty much got away scot-free, while the people who they marketed their schemes to continue to be pursued by HMRC for unpaid tax.
“Many promoters continue to this day peddling their schemes, so HMRC’s plans to crack down on this are welcomed, but it’s too little too late,” she added.
In a statement to Computer Weekly, a spokesperson for the Loan Charge Action Group, who are actively campaigning for all retrospective elements of the policy to be revoked, said the proposals put forward by HMRC do not go far enough.
“There are regulations and consumer protections for everything from mortgages to dentistry, but for some reason accountancy and tax advisories don’t have the same protections for customers in what is a very complex area,” the spokesperson said.
“If people have been badly advised, they should have protections and be able to take action. It also seems wrong that whatever measures will be taken [against promoters], they aren’t being applied retrospectively.”