HMRC under fire after disguised remuneration paper

A freshly issued government policy paper on disguised remuneration has been attacked by those affected by the 2019 Loan Charge.

Individuals, groups and firms affected by the charge used social media to accuse the paper of ‘leaving out key facts’ and ‘misrepresenting the position of both scheme users and HMRC.’

The Loan Charge Action Group, which is championing an EDM against the charge which has now attracted almost 80 MPs, issued a rebuff in the shape of ‘five fundamental facts.’

'Fear of IR35'

The five are; ‘The schemes were and still are legal,’ ‘Many were forced to use them,’ ‘Users paid the correct amount of tax due at the time,’ ‘HMRC knew and did nothing for decades’ and ‘The motivation was fear of IR35’.

Less in dispute is an extension of the date by which HMRC says those affected should submit all the vital details to its officials, if settling is the intention. But even this irked taxpayers too.

“The deadline originally set by HMRC was May 31st,” wrote ‘Sabina’ in a letter to the Evening Standard. “Apparently this has been extended [to September 30th 2018] but without any form of communication [to me directly].”

'No longer in avoidance'

The Revenue expects a reported 30,000 contractors to come forward by the September deadline, additional to the 5,000 freelancers it claims have handed over £500 million already.

Regarding payments, the department expects an average of £50,000 each per scheme user, indicating a collective, total payment upwards of £1billion, the Times reported.

But in the briefing paper, HMRC claims it will allow scheme users to spread their payments over five years if their taxable income in 2018/19 is under £50,000 and, if “they are no longer in avoidance.”

Behind the scenes, the Revenue is writing to the almost 21,000 scheme users who have already accepted that they used ‘non-repayable loans’ and have registered an interest in settling.

'Can't set APNs against the LC'

Seemingly designed to nudge them to settle, the HMRC letters state: “You should also be aware the Accelerated Payment Notices (if applicable) cannot be set against the Loan Charge”.

In the briefing paper, the Revenue could be referring to APNs when it talks of its “range of powers” to tackle those who promote or enable tax avoidance.

Although the department’s ‘enabling penalty’ of £1million is probably more what it had in mind, a leading tax dispute advisory believes it is HMRC’s ‘carrot’ not just its ‘stick,’ which does not always bear scrutiny.

'The reality is different'

“HMRC claims that they always listen to taxpayers – ‘customers’-- who may have difficulty paying, and are flexible,” says the advisory, WTT Consulting.

“[Unfortunately the] reality is that this does not happen. Practically, anything over 18 months is challenged, over 24 months needs very detailed supporting analysis and we have never seen more than 36 months. Why does [HMRC] policy and reality vary?”

As to the HMRC claims made in the policy paper which WTT suggested were also open to challenge, the introduction of section 4 is an example.

'Long gone'

In it, the Revenue states that, “the 2019 charge will affect users of disguised remuneration schemes who haven’t repaid their loans”.

A questioning WTT reflected: “HMRC claims that the loan charge can be avoided by repaying the loan. How does this help when the lender has disappeared?”

Jim Armitage, the Evening Standard’s city editor confirmed: “It would be nice to think that the accountants who invented the schemes got clobbered too, but I suspect most are long gone”.

In an open-letter published in the newspaper, he added: “We need a compromise where contractors repay some of the money and the companies they worked for pay the rest.”