Powers given to HM Revenue and Customs to tackle tax evasion are undermining the rule of law and are unfair to taxpayers, a report from the House of Lords has warned.
The House of Lords Economic Affairs Committee is calling for a review of HMRC and its powers as a result.
It says that while it recognises the importance of tackling tax avoidance and evasion it needs to be done in a way that is fair to taxpayers.
The committee believes HMRC has been granted powers without effective safeguards, and which “disproportionately” affect lower-income tax payers.
Lord Forsyth of Drumlean, chair of the committee, says: "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.”
He describes higher penalties designed to deter some taxpayers from continuing appeals against tax liabilities as a “tax on justice”.
He says: "Some of these powers disproportionately affect unrepresented and lower income taxpayers.”
The report was also critical of the loan charge, a fee aimed at recovering taxes from people who used certain loan arrangements that were designed to avoid tax.
Set to be introduced from April 2019, it is designed to claw back money from as far back as twenty years ago and could affect up to 50,000 people.
Lord Forsyth says: “We took some disturbing evidence on the government’s approach to the loan charge. This is devastating the lives of middle and lower income individuals, from the private and public sector (including the NHS) 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 report also included examples of those affected by the charge, including the case of a social care worker who was made redundant by her local council.
After losing her job she was told she would be re-employed as a contractor if she went through an agency that used the scheme.
The report stated: “At the end of those five years, the council told her it would re-employ her as an employee, which it did. She was unaware of what was going on. She now faces a loan charge equal to probably a year and a half’s salary. She has no means of paying it.”
The report recommends HMRC urgently reviews all loan charge cases where the only remaining consideration is the individual's ability to pay and establishes a dedicated helpline for those affected.
Responding to the report, a government spokesperson says: “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.”
We do always try when possible to have a comment given from a named government minister, but often this is not forthcoming and are instead offered comment from a "spokesperson". I appreciate this is not ideal but is what the government gives us to work with.
The alternative is that we don't publish these kinds of stories, as particularly when we are critical of government behaviour, for the benefit of balance we give the department in question the right to reply to accusations as this is only fair.
With regard to avoidance and evasion, we are well aware of the differences. The loan scheme mentioned in this article is a form of tax avoidance. But that does not stop the government from attempting to 'crackdown' on legal practices. Indeed the spokesperson says this in the comment.