Testimonials – Lochman K

Lochman K., London

The amounts that HMRC have assessed me as owing bear no relation to reality, for instance, the 2010/11 assessment is arrived at by estimating my income as “5-times my income from the previous year”, despite HMRC having all relevant information to hand. This is hardly the basis for a sound tax assessment and more like a finger-in-the-air-make-it-up-and-see-if-he-pays phishing expedition.

Because the APN demands come through sporadically (but always on a Friday, just in time for the weekend) I do not know the full extent of my potential liability and cannot plan accordingly.

All of the above means that i am permanently stressed and this is taking its toll on my health.

I appreciate that many will view me as an amoral tax avoider that deserves no sympathy however, I would counter that view by making clear that my main motivation for entering into a “tax avoidance scheme” was to obtain clarity regarding my position. What do i mean by that? Well, let me explain…

I am a self employed contractor who works in the city and has done for many years. I have a wife and 2 young kids, i live in west London and until 2009 i was a middle manager at a large bank – i am not some highly paid trader/banker living a rock star lifestyle.
I grew up in Acton, attended state schools in Ealing and have worked hard all my life. In 2009 I was made redundant and rather than return to salaried employment decided to strike out on my own. Like many professional contractors I set up a limited company (a pre-requisite for many city institutions) and negotiated my own contracts and took responsibility for my future – I don’t receive sick pay, holiday pay, pension contributions, professional training or any of those other benefits that accrue to permanent employees. I embraced an entrepreneurial outlook and accepted the risk of that undertaking on the understanding that my reward would be to see my company grow and prosper. However, it became increasingly clear that the government of the day didn’t approve of contractors setting up companies, misguidedly presuming that the main reason for incorporating was to avoid tax. As such, the government introduced legislation, so called “IR35”, to crackdown on contractors like me.

The unintended consequence of this legislation was, I believe, the blooming of the tax avoidance industry and its mass marketing to “ordinary people” like me. It was my own accountant – a professional, qualified accountant, believe it or not – who proposed the tax avoidance scheme that i would eventually participate in as a means of removing the IR35 uncertainty that hung over me.

That scheme was sold to me on the basis that:
it had a DOTAS number – i.e. HMRC had given the scheme an official number which indicated tacit approval as the scheme had been around for many years and HMRC had not moved to close it down, ergo it must be legitimate it had a leading QC’s opinion – i.e. it’s “legal”, it’s definitely not tax evasion (which is illegal of course), it’s avoidance – perfectly within the rules. It will leave me no worse financially than if i were running my own limited company but with the added benefit of massively reduced administrative overhead (no more VAT returns, Annual returns, employee returns, etc)it will position me outside of the IR35 legislation – no more uncertainty…

Given all the above, it made complete sense to participate in the scheme and it’s only with hindsight that I’ve come to understand that I was naive to believe the promoter’s assurances and to later recognise that I’d been missold to. Nonetheless and despite the above the fact remains that my participation in a tax avoidance scheme is not illegal and yet I am vilified as a criminal.
HMRC have been given unprecedented powers to demand payment within 90 days of amounts that don’t have a sound basis for calculation (because the underlying dispute has not been decided by the courts) and so HMRC just seem to pluck numbers out of thin air, contrary to the requirement that they act with due care. Moreover, I have no grounds for appeal – such provisions were determinedly excluded from the legislation despite massive objections arising from many quarters – and when the time limits are up the “debt” (technically a payment on account) will be passed to the debt management team and that’s when things will become really serious for me.

For the record, I am still a contractor working in the city via my own limited company, but for how much longer I can’t say as every budget seems to bring with it ever more attacks on my way of working and it seems that the government won’t be content until all freelancers like myself have been driven out of business and only the large consultancies remain. The irony of course is that those large consultancies are the real serial tax avoiders and the sums that they avoid are vast.

Go to next testimonial

Back to Testimonials front page