HMRC rejects misleading peers about its own disguised remuneration contractors

HMRC has denied the need for an investigation into whether it broke the civil service code by allegedly withholding details to peers about its disguised remuneration contractors.

Issued yesterday to ContractorUK, the denial came after MPs said HMRC has identified a total of 18 DR contractors, not just the 15 whose scheme usage coincided with working for it.

The Loan Charge APPG also said that at least 11 of the contractors were hired by HMRC or its subsidiary after April 5th 2019 -- the date when the loan charge should have been declared.

And the MPs further found that HMRC or its Digital Tech Services arm were still taking on new DR contractors in December 2019, the month of the Morse Review into the DR debacle.

Worse perhaps, even in the very month that changes from the review received royal assent, July 2020, HMRC/DTS were still using contractors who were themselves using DR schemes.

'Information discovered by HMRC not shared'

Problematically for the Revenue, the APPG says HMRC established it had DR contractors in its ranks in November 2019; the very month it began ducking a Lord’s question on the issue.

Even a year prior (November 2018), MPs say HMRC knew it had contractors with a “history of [DR] usage,” but went onto “evade the question” of Lord Forsyth, in writing, four times.

“The information discovered in November 2018 was then not shared with the committee,” the Loan Charge APPG says in a new report.

“[Then following its own] analysis conducted in November 2019…HMRC failed [again] to inform the [Lords] when it was something that [they] should have been informed about.”

'Updated compliance'

In October 2020, HMRC ran an "updated compliance" check, to discover some of the historic DR users of November 2018 were in fact using schemes at the same time as supplying HMRC, at odds with an earlier finding by the department.

But the Revenue still did not tell peers.

Hence a new formal letter to HMRC’s boss Jim Harra, sent on Tuesday, that asks him 10 questions, including if he was “personally involved” in “the decision” to not disclose details to the House of Lords Economic Affairs Finance Bill Sub-Committee.

'Likely to be a breach'

“We believe that withholding this information from a Parliamentary Select Committee, in this way…is likely to be a breach of the Civil Service Code,” the MPs say.

“It is clear that HMRC had a duty to inform [peers on] the Economic Affairs Sub-Committee about this information, which had been discovered as direct result of the enquiries from the Committee.

“Instead, a decision was taken to withhold the information, with it being embarrassing to HMRC. We believe there should be an investigation into this, including looking at whether the Civil Service Code may have been broken.”

'Did not mislead the Lords'

An HMRC spokesman rubbished the recommendation of an investigation, saying the Revenue "do not agree" with it.

The HMRC spokesman said: “HMRC senior leaders did not mislead members of the House of Lords, and we have never endorsed or participated in disguised remuneration tax avoidance schemes.  

“It is possible for contractors to use disguised remuneration without the participation or knowledge of their engager.”

The HMRC spokesman continued: “Whenever it is or has been discovered that a contractor, providing services to HMRC or RCDTS, is currently using a disguised remuneration scheme, we have acted and will act promptly to terminate the relevant engagements.” 

'Deliberately diversionary response'

Shown HMRC’s statement, Steve Packham, co-founder of loan charge contractor support group LCAG said: “HMRC have issued what is a deliberately diversionary response to the criticism, claiming that they never misled members of the House of Lords.

“HMRC know full well this isn’t what the Loan Charge APPG report accuses them of -- it is the fact that they withheld information from a House of Lords Committee, which they manifestly did.

“So already we have yet another example of HMRC, including senior HMRC officials, seeking to avoid scrutiny by evading the real point they are challenged over and instead giving the false impression that they haven’t done what they were actually challenged over. This should be shocking from any civil servants, but alas with this being HMRC, it is par for the course”.

'Always clear schemes did not work'

In their letter to Mr Harra, the Loan Charge APPG co-chairs Sir Ed Davey MP, Sir Mike Penning MP and Ruth Cadbury MP, ask him how it can still be “credibly claimed” by HMRC that it was “always clear” such schemes “did not work,” when the department was itself using contractors who were using the schemes.

In their report, the MPs say: “We believe this is yet more evidence that shows that the conclusion that the ‘law was clear’ from 2010 is unsound and that the continued imposition of the retrospective Loan Charge is unjust and that this should be revoked, to restore the right of affected taxpayers to challenge HMRC in the tax tribunal system and to avoid the bankruptcies and breakdowns that will alas, otherwise happen as a result of facing the Loan Charge.”

'Damning report'

The Loan Charge Action Group’s Mr Packham said: “This is a damning report and HMRC have been exposed, both for the utter hypocrisy of using contractors using arrangements they claim aren’t acceptable, but also for the disgraceful way they continue to act in a dishonest and dishonourable way over the Loan Charge.

“The information revealed through Freedom of Information requests clearly exposes the fact that HMRC withheld information from a Parliamentary Select Committee, which is a serious matter. There must be an external investigation over this and if the Civil Service Code has any credibility, senior HMRC staff should face disciplinary action.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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