Category Archives: Information & Action

Retrospective taxes: Tories are ripping a page straight from the Nazi playbook

It’s not a few aggravated contractors saying it, but Emeritus Professor of Finance and Accounting D.R. Myddelton ….

Via the Institute of Economic Affaires :

“Retrospective taxes are a favourite Nazi practice”

‘There is no difference in principle between taxing people on income that was not legally taxable at the time it arose, or at higher rates than were then in force, and fining, imprisoning, or even executing people for so-called “offences” which were not legally offences at the time they were committed.’

“It is disappointing – to put it mildly – to see a modern British government resort to this obnoxious practice once again.”

The above was written in… 2012, and with regard to retrospection used against a big bank!

We wonder what the Professor would then have to say about APNs, causing irreparable  tens of thousands of average families, let alone on the impending and infamous “2019 charge” 

What is the “2019 charge”?

The so-called “2019 charge” is simply the Treasury’s latest plot to cover up a decade of mismanagement and failure to simplify the tax system, by introducing a wholesale retrospective tax on the self-employed going back 20 years (that’s right).

Originally devised by uber cynic chancellor George Osborne before his fall from grace, it has been quietly endorsed by “Spreadsheet” Phil Hammond, who no doubt saw in it a quick and easy way to improve the bottom line at the expense of a group with relatively little lobbying power: middle-class contractors and their families.

The legislation has been the subject of a “technical consultation” at HMRC, and here is what the highly respected and usually moderate ICAEW (Institute of Chartered Accountants of England and Wales) had to say about this unprecedentedly cynical (even by Tory standards) stunt:

“We are very concerned about the proposals in the consultation document as they contravene
generally accepted notions of fairness and break the constitutional convention against
retrospective legislation, imposing tax charges in cases where taxpayers already had legal
certainty that none were due.
(…)
It is not acceptable for HMRC to create a retrospective tax liability where none currently exists,
especially as HMRC has been aware of loans to employees (referred to in the consultation
document – and adopted here for convenience only – as disguised remuneration (DR)
schemes) since at least 1999.(…)

To introduce legislation which affects transactions which were entered into up to 17 years ago (measured from the current year) where HMRC
has taken no timeous action despite knowledge of the alleged avoidance is likely to lay the proposed legislation open to challenges under the Human Rights Act (…)

HMRC should apply existing legislation rather than giving the impression of
being unable to take action by proposing new legislation duplicating what is already there.

On the international scene these proposals when considered in the light of other recent and
proposed changes to employer taxes and payroll, benefits-in-kind and expenses reporting
processes are making the UK appear a more ‘difficult’ country in which to locate staff, which
may not be desirable in today’s fragile economic climate.“

As you reflect on the above hard words, please ask yourself the following: once the retrospective genie is out of the bottle, what certainty is there left in anything?

The answer is “none“, for the Government can at any moment go back in time, change the rules retrospectively, and present you with an arbitrary bill, with no right of appeal.

NO ONE IS SAFE FROM RETROSPECTIVE LEGISLATION, as it is simply too tempting for the Government to use heavy-handed tactics on a “the end justify the means” basis, rather than resolve the real structural issues and face their own past failures.

It is even more so in situation where a ruling party is in crisis and desperate to cling to power by any means necessary.

This is the very reason why most civilized countries have retrospective legislation forbidden by their constitution.

Sadly, British exceptionalism sets us apart once more  – again, for all the wrong reasons.

HMRC’s creative APN accounting: making a rod for their own backs?

liar

With hardly anyone noticing, the “HMRC wins 80% of avoidance casesalready dubious line we have been hammered with for the past couple years has now discreetly been changed into “HMRC wins almost 90% of tax avoidance cases”. This can be seen in this press release from earlier this month

Why HMRC would do this, and why now? No, it’s not merely for PR purposes.

A commenter on this AccountingWeb thread proposes an explanation

“There is a reason why HMRC have recently changed their objectives to “maximise revenues”, the Government needs your cash. What might a poorly led company try to do in such circumstances, accelerate receipts perhaps? Book income that isn’t actually income perhaps? Did I mention that the whole of government accounts record APN receipts as income even though they are an accelerated payment on account towards something that is still to be tested in Court to decide whether there is actually any tax due?  Equal and opposite debtor and creditor anyone? However the government accounts record all but a 10% provision as income.
Did you notice that HMRC had recently started claiming to win 90% and not just 80% of tax avoidance cases that go to Court. I wonder which came first, the decision to only provide for 10% in the accounts or the analysis of cases that justified a 90% success rate. HMRC have though finally got around to disclosing the cases that they used to get their 80% or 90% results and a number of very professional commentators have asked why the list includes cases that aren’t actually tax avoidance and doesn’t include some which HMRC lost and which any reasonable person would assume should be on the list.
Next thing you know they will be trying to change the past with proposed retrospective legislation….oh wait a minute.
If you haven’t previously read George Orwell’s book 1984 you might want to pick up a copy.”

So there you have it: it’s “creative accounting” (so creative, in fact, that it would make even the Enron guys blush) destined to allow HMRC to once more mislead Parliament by affirming that they have collected “X billions of tax”, when all they have collected is retrospective payments on account of amounts that may or may not be due, to be determined at a later time.

Rumor has it that the law of diminishing returns has hit HMRC hard in their operation of the APN regime, HMRC having great trouble “collecting” from individuals, who 1/ simply  don’t have the money 2/ insist on exercising their legal rights and have initiated Judicial Reviews (how dare they!).

So what’s HMRC to do? why, requalify 10% of the amounts already collected from “payment on account” to “tax collected” to make it looks like the money is still flowing in…when in realitythe well’s hopelessly dry.

And hope that Parliament doesn’t question the figures.

A CTA’s open letter to HMRC

coercition(As posted in the comments of Graham Webber’s “Tales from the front line” in Taxation magazine )

“Below is the text of a (now open) letter sent to the Assistant Director of HMRC’s AP Review teams some 2 months ago. It raises many of the issues highlighted above. And I have not received so much as an acknowledgement.
Perhaps HMRC might care to respond publicly?

Dear Sir

Representations regarding the accelerated payment notice (“APN”)

I am a Chartered Tax Advisor representing over 2,000 taxpayers who have received APNs, many of whom have made written representations to your office. I wish to address, directly, concerns over the way in which those representations are dealt not only by your office but by all AP teams. My concerns are not with individual officers but with the policies to which they are forced to adhere. I believe they are both unfair and ultra vires.
My concern arises from the following scenario, which has arisen for many taxpayers involved in contractor loan arrangements.

HMRC issues an APN using “estimated figures”. The, unnamed, ‘designated officer’ multiplies the individuals salary by a multiple of 4 or 5. The reasons for the choice of the actual multiple are unclear. What is unquestionable is that HMRC knows the figures to be incorrect.
In these circumstances it is highly questionable that the APN is valid at all. In order for an APN to be valid its content must accord with s220 FA 2014. S220(3) provides that the notice must specify the ‘understated tax’. S220(4)(b) defines the “understated tax” as being (in the case of a notice given by virtue of section 219(4)(b) (cases where the DOTAS requirements are met)), such adjustments were made as are required to counteract what the designated HMRC officer determines, to the best of that officer’s information and belief, as the denied advantage.

APNs issued using salary multiples do not use the “best of that officers information”. To arrive at the understated tax the designated officer should refer to the form P11D submitted by the employer. It is that which is “best of the officers information”. The P60, and applying a random multiplier, cannot be said to be the “best of the officers information” when HMRC are already in possession of the correct figures. But the reviewing officers dismiss those arguments.

Furthermore, and it is this with which I take greatest issue, is what those officers do upon receipt of written representations from taxpayers who provide the correct loan figure, but no supporting evidence. In short those representations are rejected out of hand, most commonly after the expiration of the 90-day representation period, thus meaning that further evidence cannot then be provided. If it is, it is routinely rejected as being received outside the 90-day window. And this is done despite the knowledge that HMRC’s own figures are an estimate calculated using a random multiple of the wrong information (salary).
I believe that in dismissing these representations HMRC is exercising its powers unfairly and unlawfully.

The law places the onus upon the ‘designated officer’ to issue an APN using “the best of that officers information or belief”. It is highly questionable, in the circumstances above, that that duty is being carried out properly. However, in making representations upon receipt of an APN, the law (s222(2) FA 2014) requires only that those representations be made in writing, within 90 days of the notice being given, “objecting to the amount specified in the notice”. Nowhere does the law require the taxpayer to provide evidence to support their assertion. Moreover nor does the HMRC Guidance, last updated on 23 July 2015, suggest that supporting evidence must be provided.

Yet perfectly valid representations are routinely rejected stating that HMRC cannot simply accept the taxpayers (written) word on the correct figure. This despite the taxpayer having complied fully with their statutory requirements and the reviewing officer knowing that HMRC’s figure is itself an estimate. In doing so HMRC is acting inconsistently with its own Charter, which states unequivocally at 1.1 “We’ll presume that you’re telling us the truth, unless we have good reason to think otherwise”. What good reason does HMRC have for believing that taxpayers making written representations against their APN are not telling the truth when providing the correct loan figures? Upon what legal basis are valid representations being rejected?

In circumstances where HMRC issue APNs knowingly using incorrect figures, reject valid representations as to the correct figure and then pursue payment vigorously with threats of bailiff visits I am often drawn to the peculiar case of Rex v Puddle in AP Herbert’s Uncommon Law, 1935. Perhaps individual ‘designated officers’ and those reviewing valid representations, might bear that in mind when exercising the powers given to them by Parliament in apparent contravention of the law and HMRC’s own charter?

In light of my concerns I would be grateful if you would respond, in writing, setting out:

· The legal basis for HMRC exercising its powers in rejecting valid representations in circumstances outlined above,

· Why HMRC is not complying with a fundamental tenant of its own Charter, and

· Why HMRC believes that it is discharging its duties fairly and in accordance with the law.

I look forward to receiving your response.

Yours faithfully”

 

 

 

The Osborne Ultimatum: are we all being played?

Osborne ultimatum

Some serious food for thought for all victims of APNs regarding the infamous “2019 charge” on Contractor Loans (from gordo at the AccountingWeb forum)

“Tax planning, tax avoidance, tax mitigation…however you want to describe it, it is perfectly in order to resist HMRC from putting the largest shovel in one’s stores. So long as it is within the law.

Interesting that many are happy to give their opinions (not fact) on how the law should have worked and then back HMRC in their wish to dispense with tradition and rules and propose a law sometime in the future, which impacts upon planning undertaken many years ago within the law that existed at that time. Interesting that many seem to know better than the QC’s. However, HMRC do not make the law. They may propose something, but it’s Parliament that creates the law and seeks Royal assent.

I find it intriguing that HMRC have positioned this 3 years hence and then work on getting Accountants to influence clients to throw in the towel, despite the fact that there is no such law as things stand, further, we don’t know what the law might be if it arrives and therefore what settlement would amount to. The idea that the 3 year period is to allow loans to be repaid is misleading and does not explain why the Government did not act to stop any new loans being created from the date of the budget.

I also find it intriguing that HMRC think it better to employ, no that’s wrong, not employ but contract the services of behavioural psychologists to influence peoples’ behaviour, rather than work within the law.

Any behavioural psychologist would know that one way to create stress is to remove any feeling of certainty and create an atmosphere of uncertainty.

Check Companies House for Behavioural Insights Ltd. A company apparently part owned by the Treasury and part by individuals…and part by an EBT! (DS: and whose motto is “enabling people to make ‘better choices for themselves’” – you couldn’t make it more Orwellian if you tried!).
This company achieved Turnover of £4.8 million and profit of £1,4 million in it’s first period of trading. Impressive for a start-up. Who are/is its main customer(s)?

(https://www.gov.uk/government/organisations/behavioural-insights-team)

Imagine for a moment, now I am not saying this is true, but just imagine that I could convince everyone to give in and settle between now and 2019 under threat of what the law might be one day….then I wouldn’t actually need the law to be passed.

Addendum 20/09/2016 : to further understand the inconvenient truth behind HMRC’s operation, read also this article

 

HMRC should evidence open enquiries

Need material evidence to prove dowry demandAs you know, HMRC is currently conducting a campaign of delivery of Accelerated Payment Notices on an industrial scale. We are receiving very worrying feedback from readers informing us that they are in receipt of APNs for tax years where, as far as they are aware, no open enquiry exists (a prerequisite for the lawful issuance of an APN). We are hearing from accountants about figures as high as 40% of APNs where the existence of a valid enquiry is in doubt.

For this reason, we are supporting the petition started by our friends at BIG GROUP.

You will find this petition here.

Please take one minute of your time to contribute to it, and please pass the word around. Thank you.

The Telegraph: “HMRC flexes new powers on contract and freelance workers in £5.5bn raid”

osborne_2853802bThe truth about HMRC’s abuse of powers against “low hanging fruit” freelance workers is starting to come out.
The Telegraph published a comprehensive article on the topic in its September 21st edition.
Read it here

The comments section is also worth a visit.

One reader summed up pretty accurately where exactly contractors caught in the APN farce are coming from:

“Interesting the volume of comments here by people who don’t have any clue as to why this all happens, i.e, non contractors. Those who are glad to see contractors being targeted here clearly don’t know the full facts.
As a contractor you are forced, yes forced by your client to open up a limited company to trade because they will NOT employ you directly, that’s to stop them from paying tax. You cannot negotiate this, if you don’t do it you don’t work. So then you contact HMRC and say “Hi, how much tax should I pay as a contractor” and they say “errm, it’s not as simple as that, err you have to fill in a self assessment.” So then you go to an accountant and say “Hi, how much tax should I pay” and they say “errn,it’s not quite as simple as that, there’s actually no tax construct for you being a contractor, most people just open up a limited company, but actually you shouldn’t because IR35 says you are actually just a disguised employee, err but just pay yourself dividends and some income.” So then someone comes along and says, you know what, HMRC can’t be bothered to stop the companies that employ you from forcing you in to this, and they cant be bothered to set up a contractor based tax position either, and the way you are trading is actually against HMRC direction anyway (IR35) and we have a simple way of getting paid which doesn’t involve loads of paperwork and is under law perfectly acceptable, AND you get to take more money home, then why the funk wouldn’t you do it? The annoyance is that HMRC could stop this overnight by either setting up a contractor related tax structure OR just stopping the companies who employ us from not paying us directly OR targeting those offshore companies offering the service are not being cracked down on or have any regulation put on to them.

What’s even more comical is that the money we collect and pay to HMRC in VAT and corporation tax is much more than HMRC would get as tax from us as an individual, AND if they make us go bankrupt they will lose a huge amount of future VAT and tax because we will never be employed again. Why make someone bankrupt for £30k when they will make you a million over there lifetime if you let them continue to work?? Added to which most contractors are doing this because they are some of the best people in their industries, and the country will lose the top people who are making this country successful and are in turn paying for all of the average low paid losers who took out a mortgage they can’t afford and are being bailed out by the country.”

HMRC has a very deep responsibility in contractors moving to DOTAS structures en-masse in the early 2000’s. Today, they are complaining about a situation they themselves created.

There is something in there for psychologists!