The Powers of HMRC: Treating Taxpayers Fairly

FreelanceToday, 4th December 2018, The House of Lords, economic affairs committee published a report demanding that the law should be changed.

The changes demanded include the right to appeal to the tax tribunal against all HMRC determinations and notices, including Accelerated Payment Notice. The current legislation allows the taxman to undermine the rule of law which is driving people towards bankruptcy by unfairly targeting freelance workers.

But why would HMRC target freelancers?

Because current legislation aimed at wealthy investors is being used to force individuals to pay their potential liability upfront, avoiding HMRC a chase through the courts.

For example, most freelancer’s affected earn between £60,000 to £80,000 but are being told to pay a tax bill equivalent to their yearly pay – but within a 90 day deadline.

IR35 – Loan Charge

The Loan Charge was set up to combat tax avoidance and the report details that HMRC has a range of powers to deal with promoters of tax avoidance schemes but little evidence has been seen of action against these tax avoidance promoters. Instead, HMRC has appeared to have been targeting individuals, such as self-employed freelancers and NHS workers because liabilities can be more easily recovered.

Taxpayer safeguards and access to justice

The report starts by clarifying that the deliberate evasion and aggressive tax avoidance by individuals are unfair on other taxpayers. And that the committee fully supports HMRC’s efforts to recover tax owed and deter such behaviours.

The report then continues to state that the Government’s approach does not appear to discriminate effectively between the full range of behaviours and circumstances it describes as tax avoidance. There is a clear difference in culpability, for example, between deliberate and contrived tax avoidance by sophisticated, high-income individuals, and uninformed or naive decisions by unrepresented taxpayers. Clearer distinctions are needed in the Government’s approach and rhetoric towards tax avoidance.

Naming & Shaming

The report goes on to say that there is a blur between those who have broken the law & those of whom HMRC disapproves. Recommending that naming and shaming should be restricted to only those who have broken the law and that HMRC has in recent years adopted a “guilty before innocent” approach in its enforcement activity.

The Tax Policy for Lawful Taxpayers

The current Tax legislation can adversely affect compliant taxpayers as it leaves too much to the exercise of HMRC discretion. The report details that Tax legislation should be narrowly targeted at the taxpayer groups it is intended to affect, with guidance from expert tax and business representative bodies.

To read the full report – The Powers of HMRC: Treating Taxpayers Fairly

Further reading – The Times

Rachel’s Tax Tip

Rachel Stein - Directors of Gold Stag Accounts LtdWe advise all our clients to take out HMRC protection insurance, which provides expert defence in the event of any HMRC enquiry, including IR35. In our opinion, insurance is a low-cost way of providing freelancers & businesses peace of mind in the event of a costly tax investigation. Get in touch for a quote.

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