Greater powers given to HMRC to clamp down on tax avoidance undermine the rule of law and access to justice, according to a report from the House of Lords.
The Economic Affairs Committee said the powers given to HMRC are ‘disproportionate’ and taxpayers are being treated unfairly. The committee has called for the UK tax authority’s powers to be reviewed.
“HMRC is right to tackle tax evasion and aggressive tax avoidance,” said Lord Forsyth, chairman of the Economic Affairs Committee. “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. Since 2012, perhaps due to reduced resources, HMRC has been granted some broad, disproportionate powers without effective taxpayer safeguards.”
The committee raised particular concern with the government’s approach to the April 2019 loan charge. This will be introduced next year to combat so-called ‘disguised remuneration’ schemes. Under these schemes, workers were paid using loans or other arrangements in order to avoid income tax and National Insurance contributions.
However, the committee warned that the new measures were unfair on lower and middle income individuals. The charges will be applied retrospectively, meaning people will have to pay tax on payments received years ago, and people who are were unaware they were breaking tax rules could be affected. The report claims that many workers had no choice but to use disguised remuneration schemes.
“This is devastating the lives of middle and lower income individuals, from the private and public sector (including the National Health Service) who used disguised remuneration schemes, in many cases being required to do so by their employers,” said Lord Forsyth. “The charge is retrospective in its effect, claiming tax from years which should be closed to the enquiry.”
The report recommended that HMRC review all their loan charge cases, with the only consideration being the individual’s ability to pay the charge. They also urged the tax authority to set up a support helpline to help those affected by the loan charge, and that any action should take place well before it comes into effect in April 2019.
The Loan Charge Action Group, who were set up to raise awareness of the retrospective tax, said: “The draconian loan charge allows HMRC to go back 20 years, demanding huge tax bills for arrangements that were legal and openly declared to HMRC at the time. The victims – who include social workers, teachers, doctors and nurses as well as IT contractors – simply followed professional advice and submitted their tax returns every year, with HMRC never challenging theses returns at the time. Yet they now face unjustifiable and life-destroying tax bills they cannot pay and cannot fairly appeal.”
A government spokesperson has defended the powers granted to HMRC, saying: “We’ve taken unprecedented action to crack down on avoidance and evasion, making sure people pay their fair share of tax and securing funding for our vital public services. 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.”