A report released last week by the House of Lords’ Economic Affairs Committee criticized Her Majesty’s Revenue and Customs (HMRC) for being too “aggressive” in its efforts to combat tax avoidance.
According to the Financial Times, the committee dictated that the HMRC’s actions have been “disproportionate and [undermine] the rule of law” and are “not sufficiently accountable” for how it deals with taxpayers.
Furthermore, as reported by the Financial Times, the committee asserted that “HMRC was now being asked to clamp down harder on tax avoidance and evasion with fewer staff and had been given extensive new powers, creating a culture of “harshness” that did not consider whether taxpayers were treated fairly.”
Lord Forsyth was particularly alarmed when he found out HMRC’s bold tactics were “hitting health workers and social workers.”
Forsyth said, “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.”
Forsyth also recommended “a new review of HMRC powers, and an independent review to consider new oversight arrangements for HMRC,”
In response to the report, an HMRC spokersperson said, “Parliament has given HMRC powers it needs to tackle businesses and individuals who do not pay their fair share, and it uses them responsibly and subject to appropriate checks and balances.”
Loan Schemes Hit Hard in HMRC’s Bold Approach Against Tax Avoidance
The report singles out the way HMRC has handled the loan charge, a penalty on individuals who were receiving their salary, sometimes without them even knowing, via employee benefit trusts.
As explained by The Telegraph, “employee's wages would be paid into an offshore trust and then 'loaned' to the employee on a five or 10 year basis,” although “both the employer and the employee knew the loans would roll-over, so no tax would be due.”
In 2010, HMRC declared these specific schemes illegal and told its users to repay the loan, pay taxes owed by April 2019 or be penalized.
In this particular instance, writes Sam Meadows for The Telegraph, the committee’s report urged “HMRC not to apply the charge to people who were not challenged by the taxman within the time limits,” which “is typically between four and six years.”
With regards to the loan charge, Lord Forsyth said, “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.
“The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry,” he concluded.
In response to this specific issues, an HMRC spokesperson said, “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.”
Economic Affairs Committee Also Seeks to Limit HMRC’s Power
Another item brought up by the report was the “disproportionate power” awarded to HMRC by last month’s government’s finance bill in its battle against tax avoidance.
As reported by Louis Ashworth for City A.M., “The sections referred to would extend the time limits for assessing offshore tax arrangements to 12 years, which the committee said would “place an unreasonable burden” on taxpayers, most of whom do not use offshore arrangements, and who would be forced to maintain records for longer.”
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