Craig B., London:
“Before retraining and changing my profession in 2012, I worked in I.T. for 20 years. I was an I.T. contractor between 1999-2001 then from 2004-2012 and worked in permanent employment during my other years in the industry. Contracting clients paid me via the recruitment agencies who brokered the contracts and my contract durations ranged from 3 months to 6 years, sometimes contracts ran consecutively with one client meaning in effect I worked for the client for one or more years without cease. But in all cases, the contract client reserved the right to terminate my contract on a month’s notice with no redundancy proceedings. There were no holiday pay, sick pay or other benefits normally offered to permanent employees. The message was clear, ‘you are a temporary and easily disposable member of staff.’ Although I was content to take the risk, it didn’t mean I didn’t have some anxiety when I spent several months out of work while looking for a new contract; there was no job security, one opts to be contractor at one’s own financial risk.
For 4 financial years of my contracting I was paid using disclosure of tax avoidance (DOTAS) scheme. These schemes were fully sanctioned by HMRC. The income received under these schemes was declared on each contractor’s self-assessment return.
Since there was and is a high demand for I.T. professionals, contract rates are high. The IR35 legislation was introduced some years ago, seemingly specifically to curtail the tax advantages of working via a limited company as an I.T. contractor for a single client for a prolonged period. The IR35 sought to treat the income of longer standing contractors (24 months or more, I believe) as if it was PAYE income. This did not take into account the job security and benefits normally enjoyed by permanent employees. In other words, HMRC wanted the money and conveniently ignored the fact that the people they targeted were temporary employees even if their skills were in particular demand. Although HMRC drew some revenue from successful litigation under the IR35, I understand the legislation proved unwieldy and more to the point, didn’t generate as much revenue as HMRC would have liked.
My understanding of the effects of the more recent changes in law are firstly that HMRC can apply taxation in retrospect of tax legislation changes. Secondly, HMRC can now force tax payers to pay disputed tax amounts in advance of a determination of the tax payer’s real liability based on HMRC’s belief in the precedent they believe exists for charging tax in the given situation. In other words, if they think you owe them money, you simply have to pay and there’s nothing you can do about it. Whether you eventually successfully appeal and are subsequently paid back is a separate issue, you have to pay up front anyway.
Notice of such liability is served in the form of an accelerated payment notice (APN). Once an APN has been served, the tax payer has 90 days to pay the amount in question before massive penalties begin to accrue. There is scant recourse for the tax payer to appeal the APN aside from challenging the amount calculated on the APN or the technical legality of the APN being served.
When the legislation was brought in, HMRC assured the public they would use their new power responsibly. In practice, HMRC are combining their new powers of retrospective taxation, the APNs and a good deal of belligerence and incompetence to force most contractors who used the DOTAS arrangements to pay retrospective additional tax on the income they received via the DOTAS schemes despite the fact that their record of successful litigation against appeals in similar cases is insufficient to give definite precedent for an APN being issued.
Where contractors (including myself) have made representations appealing the legality of the APNs being issued, HMRC have simply refused to acknowledge the legitimacy of our claims and insisted the payment was due on the date given regardless (our legal counsel insists they are incorrect). Some contractors have successfully been given an additional 30 days to pay based on HMRC’s acknowledgement of calculating incorrectly but in some cases, even though they acknowledge the figures were incorrect, they have still insisted payment of the corrected amount is due by the original APN date (in law if such an acknowledgement is made, the tax payer has 30 additional days to pay).
HMRC have also frequently (if not most of the time) miscalculated the amounts due so APNs are being issued for incorrect amounts.
For an APN to be issued against a certain self-assessment year, HMRC are required to have opened a formal enquiry against that year’s self-assessment return within a certain time limit. As if the unreasonable forced payments and incompetent calculation were not enough, many contractors are now receiving APNs for years they never received enquiries for within the legal time limit. HMRC are claiming certain financial years are under enquiry and that the appropriate documents were served in time when neither the tax payer nor their tax agent ever received such documents. HMRC apparently have to prove sending but not postage of such documents. This would never work for a tax payer with say, a late self-assessment payment or payment on account. To avoid a penalty, the tax payer would have to send their cheque or payment by registered post or prove an electronic funds transfer to place the onus back on HMRC to disprove the late payment. HMRC on the other hand are saying they opened enquiries in time and it isn’t their fault if the post wasn’t received. This means where a contractor previously understood they could be issued APNs to a limited number of financial years due to a legal look-back period on self-assessment, it now seems HMRC can claim they opened the necessary enquiries and can therefore issue APNs forcing the contractor to pay tax on years they had not anticipated and been able to plan for (let alone that HMRC’s grounds for demanding the tax are spurious in the first place).
In many cases, the actual amounts involved are tens to hundreds of thousands of pounds potentially including penalties and interest. Obviously the circumstances of individual contractors vary but generally, contractors are individual people, perhaps with higher net worth than many but by no means so wealthy they can afford to pay the amounts HMRC spuriously claim they owe without serious personal consequences. Many contractors face losing their homes and having to relocate their families, change their children’s schools or even face bankruptcy. My own situation is not as bad as some but do I face considerable hardship if I am forced to pay the amount HMRC claim I owe (and since I’ve been issued with an APN, although steps are being taken to challenge the legality of these documents, it looks as if I will have to pay). I have changed careers and earn significantly less than when I was in I.T. The income in question for several years ago was income I believed I had paid the correct amount of tax on and was comfortable in that certainty. Now HMRC are essentially claiming I am guilty of tax avoidance even though I declared every penny to them.
The essence of these new proceedings are that the tax payer is now assumed to be guilty and will be charged up front and their appeal can wait until HMRC get around to it. I believe it is perniciously undemocratic in a country that claims to uphold human rights and democracy. Through what I believe is the most unfair and unreasonable abuse of the powers vested in a clearly incompetent and vindictive tax department, I have lost my trust and confidence in the honesty, integrity and competence of our government. I believe in taxation from the broader perspective but because certainty is so important for a peaceful society, I feel that taxation should be applied with rigor (i.e. competence), clear process and fair right of appeal of the tax payer. Now how do I ever have any certainty that HMRC won’t come after me for tax I thought I’d already paid based on some legislation they change in the future and charge in arbitrary retrospect, claiming they opened enquiries and not having to prove they followed due process when doing so?
This new system is simply crown preference – ‘we just think you might owe us some money so you just have to give it to us now. And then we’ll see what happens about your appeal, shall we’, say HMRC. Furthermore, although it is being applied to those income earners HMRC feel are the ‘easiest wins’ and the best revenue generators, what is to stop them applying it to anyone? What if a plumber who HMRC incorrectly suspect of taking cash jobs and evading tax on income easily hidden is issued with an APN she can’t afford to pay? What if a temporary employee working at Boots being paid an hourly rate is investigated and HMRC suspect him of owing further income? The new legislation is conveniently being applied to those HMRC feel they can gather money from but it isn’t limited to these people and that is a serious blow to democracy in this country as a whole.
The move has been made popular in the face of present public ire over ‘the rich’ following the credit crisis but what people seem not to see is that actually it’s a move towards dictatorship for the whole country. Now HMRC can go after whoever they want and the person has no choice but to pay up front and wait years for the outcome of any appeal they may lodge if they can even afford the legal counsel to appeal. Furthermore, the rules can be changed retrospectively so even when you think you’re playing by the rules and HMRC actually agreed with you, they may later arbitrarily decide you weren’t and there’s nothing you can do about it. HMRC repeatedly renege on assurance of reasonable treatment they offer and repeatedly miscalculate through shear incompetence. Why should we believe they will be any different in the enforcement this legislation?
Although my income is now so low it will hardly make a difference, I now feel my tax contributions should be arbitrary in line with the charges exacted by the taxation authority and the method in which they are applied. Although my options to do so are vanishingly small, I will avoid tax where-ever I possibly can. I have paid more tax in 20 years than many people pay in a lifetime so if I never pay any more, I still consider my civic duty to have been discharged. That is the kind of attitude HMRC are seeding in society with this new undemocratic law.”