In HMRC Vs contractors, battle lines are drawn

On the day when a raft of tax law affecting contractors is published, it is worth considering where the taxman seems to be making money and where he plans to, writes the Revenue’s former head of investigations Chris Leslie, the founder of dispute advisory Tax Networks.

Well, without reliable statistical data emanating from HMRC (as the Public Accounts Committee was aghast to find out last month), it appears that one of the Revenue’s main income streams is currently from CoP8 and APNs/PPNs.

Some may regard those participators as ‘low hanging fruit’ in HMRC’s eyes, but it should be remembered that many individuals caught up in these investigations have been coaxed and hoaxed into these ‘arrangements.’ And of course, many of them have paid considerable fees.

As to where the Revenue plans to make money out of contractors, my view of this changed on November 25th. Then, specifically at the Autumn Statement 2015, a key battleground between HMRC and contractors was marked out (again) – Disguised Remuneration.

But you have to go back slightly earlier to find the trigger. In fact, the Revenue’s attack on employment taxes and ‘disguised remuneration’ using EBTs probably took the significant turn following the Court of Session ruling on November 4th. The Rangers case (as it’s often called) now heads to the Supreme Court, with HMRC fuelled with the belief that funds allocated by reason of services are really just employed income before entering into structures such as an EBT. ‘Disguised PAYE remuneration,’ in other words.

Meanwhile, employment agencies and intermediaries, personal service companies and employment status are all in the recently PAYE regulatory cross-hairs – with proposals to prove it. These groups, of course, are additional HMRC targets.

Offshore remittances through contractor ‘schemes’ and other avoidance mechanics is another key area of revenue generation for HMRC. This will remain the case in the foreseeable future in light of new proposals for a six-month custodial sentencing (deliberate intent not needed to be proven) and 200% penalties.

Plus, the Liechtenstein Disclosure Facility winding-up at the end of this calendar year (the benefits of which had already diminished), means that the Code of Practice 9 Contractual Disclosure Facility is an area being increasingly used by HMRC in cases which are suspected to go beyond carelessness - and beyond the statute bar of six years recovery of taxes.

As those caught up in any of these 10 or so 'taxpayer Vs HMRC' battlegrounds will likely attest, these are dangerous and murky waters to navigate alone. However HMRC can - and does - operate with incomplete information, and this is where experienced and proven tax investigations advice can really come into its own. Representations need to identify the substantive issues and ensure HMRC’s request for information is reasonably required and not disproportionate. Otherwise the Revenue will be making its money unfairly. Even someone who used to run its tax investigations activities wouldn’t want that.