Top 100 Law firm explains why HMRC benefits from tax avoidance schemes

Surprised at receiving “contractor scheme” offers in your e-mail every single day? Can’t understand why HMRC won’t shut the crooks down?  Read on…

We have covered  the collusion between HMRC and “scheme promoters” in our popular article “a can of worms”.

Now top 100 legal firm Pinsent Masons chimes in, and their explanation as to why the Government doesn’t and won’t stop the so-called “avoidance schemes”.

Via AccountingWeb:

“The APNs have produced a lot of money,” said Hyde, “but once you’ve set that standard the Revenue’s masters expect them to produce that every year, and if you stop most avoidance schemes you’re not going to get money from them in future years. Therefore, you’ve got to find it somewhere else, and the Revenue is now pushing on points it hasn’t previously pushed on.”

Feeling set up? Feeling milked?

You tell us

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.

Contractors’ ordeal and HMRC retrospection get discussed on BBC’s Money Box

BBC Radio 4’s Money Box with Paul Lewis, 18/03/2017

A couple remarks to Paul Lewis:
* The contractor has paid the correct amount of tax in the first place, as defined by the law as it stood at the time.
* The contractor did not merely buy into a set-up “he thought was legal”, the set-up was legal under the law as it stood at the time.

This is precisely the reason why HMRC / Treasury don’t want anyone to look too closely at the specifics, and are introducing 20-year retrospective law, in what can only be desceribed as the biggest smash & grab of this century.

There was a number of other inexactitudes in the programme, but I guess there’s only so much you can convey in a programme like this.

Still, let’s remember that for one self-employed getting a few minutes of airtime, there are tens of thousands others silently slaughtered by HMRC, for only two reasons: satisfying Gauke’s personal lust for self-employed blood (did a contractor steal his girlfriend many moons ago? we’ll never know the real reasons, but a vendetta it sure is), and brushing under the rug over a decade of incompetence, inaction and inconvenient truths.

Private Eye nails it again

From Private Eye No. 1433, 9 December – 22 December 2016, page 6 News:

Infernal Revenue

“Last week’s report from parliament’s public accounts committee on HM Revenue & Customs read like a compendium of old Eye stories.

From the disastrous Concentrix tax credits affair (a “complete failure”, with “many claimants being wrongly accused of fraudulent claims” and causing “unnecessary hardship and suffering”) to misleading claims about success investigating tax dodging, the MPs’ message was unrelentingly critical.

But on one point they were wrong. “HMRC’s senior management cannot afford to be complacent about the catastrophic collapse in customer service in 2014/15 and the first half of 2015/16,” said committee chair Meg Hillier MP. The trouble is they can afford to be complacent. The price of failure is simply gratitude from government for mercilessly implementing cuts without care for the consequences.

The HMRC chief executive who presided over the Concentrix and other customer service “catastrophes”, Lin Homer, bagged a damehood earlier this year. Meanwhile, the non-executive chairman of the HMRC board since 2012, Ian Barlow, remains at the head of the boardroom table. Even the minister responsible for the tax system throughout the years that gave the country these disasters, David Gauke, was recently promoted to the cabinet as chief secretary to the Treasury. A similar performance elsewhere would have meant political oblivion. But HMRC’s cock-ups tend to hit lower-income families whose plight can be safely ignored, giving plenty of room for complancency.

HMRC tries another scam

unnamed

Another day, another HMRC “nudge” tactic.

This time, it is an “invitation” for the taxpayer to deliberately misclassify / misdeclare loans as income, for HMRC’s benefit, using a law that doesn’t actually exist as a threat.
There is no statute or case law in existence to back this “invitation”.
In other words: it is manipulation at its finest on HMRC’s part.

In essence, they are encouraging the recipient to file an innacurate return… then in the same paragraph, inform that there are penalties for innacurate returns. 
Even Kafka wouldn’t have made it up.
Note also the neat “I want to help you” faux-friendly tone (did Behavioural Insights Ltd. come up with this?)

It’s little wonder that people fall for “HMRC” scams every day, when actual HMRC correpondance is so blatantly manipulative and deceiving. How this can go out on official letterhead without anyone blushing is beyond us – but hey, we’re not from the Stalin-esque “the end justifies the means” school of thought…

Thanks to the reader who sent us this gem, and shame on you, Harra, Granger, Troup, & the other scammers who authorised this. Soon you will find yourselves so entangled in lies, breaches of procedure, and contradictions of your own making that neither the PAC nor the Judiciary will be fooled anymore. And when the pendulum swings, it will swing faster than you can say “maximizing the amout of tax collected“.

If you are a contractor or recipient of APN(s) and have been offered a dubious “offer you can’t refuse” from HMRC, please get in touch via our contact form.

the ICAEW savages HMRC over latest retrospective tax stunt


ouch

Presented without commentary, here are a few extracts from the Institute of Chartered Accountants of England and Wales (ICAEW)’s response to HMRC’s “Tackling Disguised Remuneration” technical* consultation – a.k.a. “the Osborne Ultimatum”

“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.

Is it us, or is a can of worms about to be opened?

* “we intend to make it happen whether you like it or not, just need to work out the details”

 

Some brutal truths about IR35.

download
As 90% of contractors at the UKHO resign over IR35, a contractor shares his thoughts…

“There are many reasons IR35 was a shockingly bad piece of legislation. From a personal perspective here is my take on it:

Being inside IR35 basically says that you are really an employee of your end client and trying to disguise the fact. This would be much worse than being an employee for the following reasons:

VAT liability – I asked Her Majesty’s Customs and Excise if I could I deregister for VAT if I was inside IR35. Their reply was that I would still have to charge VAT and that were my company not to do so they would ultimately come after me as a director for criminal fraud. As most of my clients were Financial Institutions who could not claim back VAT, the full amount charged was paid 100% to the treasury. NO EMPLOYEE WOULD BE EXPECTED TO CHARGE OR COLLECT VAT. Nor would they be crimally liable if it were not charged.

During my work for clients my company had to carry Professional Indemnity Insurance. This was almost always written into the client contact. If I was working on financial trading systems, often the premiums for this would be excessive. My company had to also provide Public Liability Insurance. NO EMPLOYEE WOULD BE ASKED TO PROVIDE PROFESSIONAL INSURANCES TO INDEMNIFY THEIR EMPLOYER.

My responsibilities as a company director meant I was responsible for filing Company Accounts and Returns. The clients I worked with would not hire me unless I traded through a Limited Company. NOT ONE EMPLOYEE WOULD BE ASKED TO FILE COMPANY RETURNS, LET ALONE PAY FOR THEM OR BE RESPONSIBLE FOR THEM.

The ultimate injustice was that if I truly was an employee as the Inland Revenue were asserting. they would ask me to pay the Employer National Insurance. NO EMPLOYEE PAYS EMPLOYERS’ NATIONAL INSURANCE. I would also be responsible for the payment of PAYE income tax and Employees National Insurance. NO EMPLOYEE IS RESPONSIBLE FOR PAYING PAYE INCOME TAX AND EMPLOYEES NATIONAL INSURANCE, as this is normally deducted by the employer.

Along with this I would have no employment rights, paid holiday or paid sick leave. AN EMPLOYEE HAS ALL THESE LEGAL RIGHTS.

I personally have no problem paying employee levels of tax. What I object to is paying both employee AND employer taxes. Especially when I have no employee rights and a stack of employer obligations.

Considering all of the above, it is unsurprising wonder that the introduction of IR35 directly caused the “contractor scheme” boom of the early 2000’s…

Have a tax credit and an APN in dispute? Beware this new tactic.

coercition

Have a tax credit and an APN in dispute? Be careful of this new tactic.

Dotas Scandal has received several reports of HMRC using now tax credits to cover outstanding APNs:

“Today i ran into a new situation. Every year i submit my tax return and go through the usual first payment on account, second payment on account. HMRC force you to pay your tax 100% over the amount you submit on your tax return and that normally sits as a tax credit.

I recently submitted my tax return, well actually way before i got letter, for 2015/16. I had a tax credit on my account, which offset against my current tax return would have meant I would not have had to pay any tax for 2015/16.

The letter today stated in simple terms that HMRC had swiped the tax credit and that under Finance Act 2008, they can do this. So basically: “tough luck, we’re not going to offset your tax credit against your latest tax return, we’re going to apply that tax credit to your APN and by the way you now still owe us £XXXXX”.

I am not even sure whether you can still pay current tax obligations. HMRC now seem to say whatever money they get they can apply in whichever way they want.”

It is no secret that HMRC are several £Bn short on their APN collection promises to Parliament, and getting desperate to extract monies by all means necessary.
As the APN well is drying up, expect more accounting tricks and unorthodox “collection” methods to be deployed. Plan accordingly.

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.