UK Taxman Ruthlessly Pursuing Its Contract Staff For Six-figure Sums In Unpaid Tax


Picture credit: hillkindy.com

Majesty’s Revenue & Customs (HMRC) is once again hounding its own employees for potential six-figure bills as part of a crackdown on tax avoidance schemes. Some years ago I was a victim of one of these crackdowns, as an Information Technology consultant I, along with thousands of others working as external consultants in both government and business were forced by the tax inspectors to operate as  limited liability companies.

The tax service had decided we were using th

e self employed status to avoid National Insurance Employers Contributions (a sanitized name for a British payroll tax,) as the self employed were not liable for this levy. By reinterpreting a law in such an extreme way it stretched words beyond any literal meaning, the taxman decided we should all set up limited companies, with ourselves as the only employee, thus making our employers, the quasi – companies, liable as our employers for the payroll tax.

Taxman thought he had won, but people who decide to employ themselves are bright, resourceful types and we soon learned the completely legal tax dodges used by the super rich, through their companies and trusts. We got ourselves accountants who advised on techniques like buybacks, directors loans etc. and we, in partnership with our incorporated dopplegangers, were soon all paying less tax than we had as self employed individuals.

Needless to say the taxman was furious. But we IT professionals, consultant engineers, designers, technicians and other contract workers in media, finance, healthcare and across the whole range of commercial activities were being advised and assisted by accountants. So the taxman hit on a new idea, he talked politicians into passing retrospective laws. Something you did legally in, say, 1995, could in 1998 be declared to have been a crime since 1993, thus in 1999 you could be prosecuted for it. And they call this liberal democracy.

All that was a long time ago. The techniques we used then have been blocked one way or another, and as a bonus for the taxman, Britain’s software industry died (well, relocated to cyberspace,) as a result.

The ruthless war on enterprise and talent continued. Electricians and plumbers were targeted by the taxman in a purge that cost us poor taxpayers £8million and in which the tax inspectors managed to recover £100,000 in unpaid taxes (yeah, economics is not one of these people’s strengths.)

Among the people in another purge  to fall foul of this new retrospective lawmaking were entertainers and sports stars. And like the professional consultants of my era, a few years earlier,  these people fell foul of the taxman for doing something that was perfectly legal at the time they did it.

Around 50,000 contractors are now being targeted by the tax office for using so-called disguised remuneration schemes, which involved receiving income in the form of tax-free loans from an offshore trust, throughout the Noughties and more recently.

The law was changed in 2016 and those who used the arrangements now face huge tax bills which, campaigners claim, will force some into bankruptcy or cause them to lose their homes.

It has now emerged that HMRC engaged contractors who were being paid in loans and is now pursuing them for the unpaid tax, the Sunday Telegraph revealed.

A panel of MPs  looking into complaints about HMRC’s persecution of certain groups has received evidence from multiple contractors once engaged by the taxman who say they used disguised remuneration arrangements and now face penalties.

Sir Ed Davey, a former Government minister, said: “This is astonishing considering HMRC’s ruthless and unreasonable pursuit of people in this situation, when they didn’t break the law and followed professional advice.

 

“What’s more, the evidence we’ve received also shows that these people declared all their arrangements in their annual tax return, so contrary to their claims not to know, HMRC were indeed aware contractors working for them were using these schemes.

One contractor, who worked for HMRC over two spells, anonymously told the panel that, based on the bills received by her peers, she expects she could be asked for almost £140,000. The 45-year-old, who lives in London, said: “It feels like the Government has gone to war against you. This is all about wearing people down and getting them to give up.”

Well yes, as I said earlier the government has been at war with enterprise, creativity and talent for a long time.

The schemes became popular in 1999 and were briefly sold by some of Britain’s leading accountancy firms.

In December, the House of Lords Economics Committee criticised HMRC’s approach to recouping the tax owed, describing it as “retrospective” and saying it was failing to distinguish between “contrived tax avoidance by sophisticated, high income individuals” and relatively low earners who made “naive decisions”.

A spokesman for the tax office said: “HMRC has never endorsed or participated in disguised remuneration tax avoidance schemes. It is possible for contractors to use disguised remuneration without the participation or knowledge of their engager.”

He added that all contractors found to have used a loan scheme would be treated the same. What a pity they do not feel able to deploy the same diligence in their dealings with companies like Amazon, Google, Facebook, Apple and Microsoft, all of which are handled with kid gloves in spite of blatantly operating tax scams to avoid paying tax on most or all of their corporate profits.

 
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