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News | Published December 04 2018

Lords slam HMRC powers; Tyrrell & Co call for increased tech to address such issues

A report from the Economic Affairs Committee, one of the six permanent investigative committees in the House of Lords, has criticised greater powers being awarded to HMRC to tackle tax avoidance and evasion, describing these new powers as “disproportionate” and affecting the “the fundamental protections every taxpayer should expect.” Tyrrel & Co, contributors to The Parliamentary Review, argue that HMRC's misunderstanding of SMEs could be solved by greater technology. 

The report, entitled “HMRC Powers: Treating Taxpayers Fairly”, examined new tactics employed by HMRC to deter tax evasion, specifically the newly introduced “loan charge.” This new penalty is designed to prevent what HMRC calls “disguised renumeration” schemes. These schemes involve employees being paid in the form of a loan, a technique that was employed to avoid National Insurance and tax contributions.

The committee described some of the evidence they had received relating to these loan charges as “disturbing” and criticised the fact that these charges can be applied retrospectively. Lord Forsyth of Drumlean, the chairman of the committee, stated that: “HMRC is right to tackle tax evasion and aggressive tax avoidance. 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.” 

Key Facts
  • Economic Affairs Committee criticise excessive power of HMRC
  • This specifically relates to a new "loan charge"
  • Committee chairman, Lord Forsyth, describes these new powers as going "against the fundamental protections every taxpayer should expect." 

He added that: “This [loan charges] 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."

 

This [loan charges] 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.

The committee also published a list of further recommendations, foremost among which was a call for Parliament to give greater scrutiny to the powers awarded to HMRC. It called for the widening of the remit of the Adjudicators Office and making sure that HMRC are obliged to follow its recommendations. 

A government spokesman responded by 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. 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. 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."

Tyrrel & Company, who featured in the Accountancy and Financial Services edition of The Parliamentary Review, spoke about HMRC’s inability to accurately deal with SMEs, precisely the group that Lord Forsyth highlighted as being particularly affected. Craig Tyrrel, the founder of the company, struck a balanced judgement of HMRC but called for greater technology to be employed to address these existing issues: “Credit where credit is due. Thanks to changes in the legislation, but more importantly the attitudes of the Courts to existing legislation, together with aggressive media coverage, most of our clients no longer need dissuading from aggressive tax avoidance strategies."

He added that: "The appetite for such strategies has all but disappeared. We still see far too much low level “non-compliance”, however, such as non-notification of tax liabilities, and too much time wasted on complicated judgement areas. HMRC is far too stretched and arguably lack the expertise and technology tools required to deal with SMEs. We are aware of other small firms advising clients to adopt a “heads down, don’t tell” strategy. Better, automated, data capture and analytics could improve the identification of offenders.”