Taxpayers treated unfairly by HMRC as lower-income earners 'disproportionately' targeted, report warns

Published by Stephen Little on 04 December 2018.
Last updated on 04 December 2018

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.”

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Well, well. What a surprise.

Well, well. What a surprise. I was subjected to the Stazi-like tactics of these swines and as a self-employed person was never a high earner. Nevertheless I was hounded and harassed for 6 months - it made me ill - despite being innocent I was told by my adviser (I belonged to a trade organisation) to 'pay what they want and they'll go away'. Which they did. One month later I was diagnosed with cancer. Co-incidence? Maybe, maybe not...

I was self employed for 3

I was self employed for 3 yearsat which time I was told the ltd company was taking care of my tax. I am now in full employment on £27 k only to hit with an £18 k tax bill. After harassing me with bailiffs now the tax office has changed my tax code to recover the £18 k to a point where it is not worth working and state benefits for me and my family seem a better option.

I'm a bit tired of hearing

I'm a bit tired of hearing 'Government and/or HMRC spokespersons' and so called journalists who write about financial matters whom still don't know the difference between 'Tax Evasion' and 'Tax Avoidance'.

Tax Evasion is illegal.

TAX AVOIDANCE IS NOT ILLEGAL

i.e. ISA's, pension contributions etc are legitimate examples of Tax avoidance. Even if Tax Avoidance is deemed "aggressive" that in itself does not make it illegal unless of course it can be shown/proven that it is not Tax Avoidance but is wholly Tax Evasion, in which case it was never Tax Avoidance in the first place.

Give me strength!

Hi Yashamatoto,

Hi Yashamatoto,

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.

Best,

Moneywise Edmund

Hi Edmund

Hi Edmund

I don't follow your first two paragraphs, my only observation as regards 'spokesperson, would be to speak to one that understands the difference between Tax Evasion and Tax Avoidance.

Tax Avoidance is LEGAL so why do HMRC need to 'crack down' on it? When did Tax Avoidance become illegal? Will I now need to pay tax on my ISA's &/or my pension contributions etc? Are our tax allowances to be scrapped also etc etc?

The article reads and gives quotes as having no distinction between 'Tax Evasion' and 'Tax Avoidance' and that they are both being treated in exactly the same way. Which of course as you tell me, you know they are not, so why refer to them as if they are the same thing?

If the article and quotes referred to, for example said 'Some CLAIMED Tax Avoidance schemes and loans which HMRC believe not be and are actually Tax Evasion' then that would be more sensical.

Yes good point well made. I

Yes good point well made. I think, however, there is a warning to all of us here. If you're a 'sort target' as our accountant called us, then watch out. It isn't until one has been subjected to their tactics (our representative was a turn-coat and told me a few of their dirty tricks) that one realises how they operate. You have 'no 'rights' and are treated worse than a criminal!

Yes. Sadly this comes about

Yes. Sadly this comes about as a result of dear old Gordon Brown who brought in loosely worded laws against “aggressive tax avoidance” as well as broke the unwritten rule that tax changes should not be made retrospectively. He also brought in taxes on pension funds and changes in company car tax that have contributed to the closure of final salary pension schemes and my last 2 employers scrapping company cars pushing the investment/depreciation risk onto the employer instead of the company. What a champion of the people... not!