HMRC must do more to support vulnerable taxpayers, warns Treasury Sub-Committee

• HMRC should give vulnerable taxpayers involved in tax disputes better guidance about tax law and more support to understand their rights
• In offering time to pay arrangements to people who want to settle their involvement in contractor loan schemes, and undertaking not to make them bankrupt or force them to sell their family home, HMRC is now taking a sensible administrative approach
• HMRC’s delay in clarifying this approach and sending settlement calculations to contractors has caused widespread anxiety and distrust

The Treasury Sub-Committee has today published a unanimously-agreed Report called Disputing Tax. It covers two of the Sub-Committee’s inquiries: 1) Tax Avoidance and Evasion 2) The Conduct of Tax Enquiries and the Resolution of Tax Disputes.

Report Summary

Part 1 – Tackling Tax Avoidance and Evasion

• Some taxpayers have fallen foul of anti-tax avoidance measures having taken professional advice to engage in disguised remuneration schemes. HMRC explained such schemes as follows: they ‘are tax avoidance measures that seek to avoid Income Tax and National Insurance Contributions by paying scheme users their income in the form of loans. The loans were never intended to be repaid, so they are no different to normal income and are taxable.’

• The Loan Charge came into effect earlier this year to tackle the use of such schemes. It applies to all loans made since April 1999 if they are still outstanding in April 2019 and the recipient has not settled the tax due. HMRC estimated that around 50,000 people used these schemes over the 20-year period. People who take a tax position that they know might be challenged by HMRC should be aware that they may ultimately have to pay the disputed tax. It is HMRC’s responsibility to protect public funds from tax avoidance, and Parliament requires it to fulfil its responsibility assiduously.

• Under its Contractor Loan Settlement Opportunity (CLSO), HMRC automatically allowed individuals who earn below £50,000 annually five years to pay the tax owing, and seven years for those earning £30,000 annually (with more time available to those who need it). It has also stated that it will not make people sell their homes to pay their disguised renumeration tax bills nor make them bankrupt. Setting the policy behind the loan charge aside, the Sub- Committee has concluded that this is a sensible administrative approach to the payment of large unexpected tax bills, but the delay in clarification caused widespread anxiety and distrust of the CLSO. There have been delays in providing terms for those who wished to settle their affairs under the CLSO. HMRC should closely monitor its response times and report back to us on the progress in providing settlement calculations. It should also update us on the number of cases that have been concluded under the CLSO.

• HMRC should vigorously pursue the promoters and enablers of avoidance schemes to the full extent of its powers, and update the Committee on how it will deal with tax advisors who continue to promote or enable tax avoidance.

• The UK is part of a network of more than 100 jurisdictions that automatically exchange financial accounting information under the Common Reporting Standard (CRS), which is one tool used by the UK to combat tax evasion. HMRC should update the Committee on what the CRS data reveals about the scope and scale of offshore non-compliance. It should also leave good time to ensure that tax enquiries regarding non-deliberate offshore tax non-compliance are opened and, where necessary, assessments made or amended.

• When it comes to dealing with offshore promoters, taxpayers or jurisdictions concerning tax avoidance and evasion, HMRC should set out any powers and measures it feels need tightening or enhancing through legislation.

Part 2 – HMRC’s approach to dispute resolution

• HMRC’s measures to improve its approach to vulnerable taxpayers involved in a tax dispute, which can cause stress and anxiety, are a welcome step, but more can be done. HMRC should provide a clearer explanation of its definition of ‘vulnerable’ when it comes to identifying such customers. We have heard that it is too difficult for anyone involved in a tax dispute with HMRC, and with little knowledge of the tax system, to find adequate information from HMRC to help them understand the law and their rights. HMRC should urgently review and improve the accessibility, quality and level of detail of the guidance it makes available to vulnerable taxpayers.

• The Sub-Committee heard it was not the case that HMRC took a ‘lighter touch’ with large corporates. Concerns expressed by tax advisers that HMRC may be being particularly strict in applying penalties to large corporate businesses provides an opportunity to remind HMRC that it must be fair and consistent in its application of tax law.

Commenting on the Report, John Mann MP, Chair of the Treasury Sub-Committee, said:

“One of HMRC’s key responsibilities, as required by Parliament, is to protect public funds from tax avoidance. As such, HMRC introduced the Loan Charge to tackle the use of disguised remuneration schemes, which it describes as an anti- tax avoidance measure.

“Setting aside the policy, HMRC’s administrative approach to the payment of large unexpected tax bills has been sensible. The delay, however, in clarifying payment terms for those wanting to settle their past use of such schemes has caused widespread anxiety and distrust.

“HMRC’s measures to improve its approach to vulnerable taxpayers are welcome, but it must urgently improve the guidance available for those involved in tax disputes.”