A House of Lords report has criticised greater powers given to HMRC to tackle tax avoidance and evasion saying that it undermines the rule of law and justice. The Economic Affairs Committee said that HMRC is being given broad and disproportionate powers with no effective safeguards for taxpayers. It went as far as to call the high penalties, which hope to deter taxpayers from appealing, as being a tax on justice, and demanded a review of the oversight of HMRC’s powers.
“HMRC is right to tackle tax evasion and aggressive tax avoidance,” committee chairman, Lord Forsyth of Drumlean, said. “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.”
The report warned that some of these powers are going to have a disproportionate effect on unrepresented as well as lower income taxpayers. It took what it described as “disturbing evidence” on the approach to the loan charge which is a new fee brought in to combat “disguised remuneration” schemes as HMRC puts it. These schemes are where workers were paid by way of a loan to prevent tax and National Insurance contributions for the employee.
The charge can be applied retrospectively which would affect people who may not be aware that they risked breaking tax rules.
“This 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,” said Lord Forsyth. “The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry.”
The report suggests that HMRC urgently reviews all loan charge cases if the sole remaining consideration is a person’s ability to pay. Instead it should establish a dedicated helpline giving those affected by the loan charge advice as well as support. Action should take place “well in advance” of the loan charge coming into effect in April 2019. HMRC says that it already has a helpline for anyone who faces a loan charge on 03000 534 226 as well as online guidance.