A dose of the taxman’s covid pragmatism would work wonders on his loan charge intransigence
This week, a new National Audit Office report on ‘Managing Tax Debt’ through the pandemic drew some interesting conclusions about HMRC which could very well impact contractors, given the significant amount of other Revenue-policed issues facing such independent professionals, writes Graham Webber, tax director of WTT Consulting.
Praise where it’s due
But first let’s acknowledge that HM Revenue & Customs has done a very good job generally in reacting to the coronavirus pandemic, and then assembling the chancellor’s lifeboats in some haste. Recognition of HMRC’s positive, timely actions is rightly due.
Yet today, our hope is that the tax authority will be just as efficient in chasing down the various cheats who knowingly took fraudulent advantage of a provision (whatever covid support scheme you wish to name), designed to help those in need.
Scant support, no real warning either
Secondly however, let me acknowledge that many in the contracting community failed to see a single penny of such covid relief. The rules unveiled by HMRC, and announced from a political soapbox by Rishi Sunak, did not at any point say that many parts of the contractor sector would be excluded. But many parts were excluded.
The freelance community’s subsequent fight for a fair distribution is continuing. But with HMRC now distracted by chasing fraud cases, that fight for fairness threatens to continue its painful, protracted and bitter trajectory.
Thirdly, as I read the NAO’s report, I’m reminded that contractors have faced a series of HMRC-led campaigns that certainly feel as though HM Treasury has intentionally targeted the contractor sector.
Notably, the Revenue’s cases claiming that individuals are due to pay tax on money paid them by employers, and these are currently making their way through the various stages of the court. Yet they will go further, and we will see many derivative cases which will absorb time and effort. Perhaps there’s as much as five more years of litigation left in those which are to be resourced and funded.
Resourcing, reassurance and resolution
The NAO say in their report that HMRC’s “current staffing is unlikely to be enough to manage the increased workload” brought on by the pandemic. Well, the taxman’s loan charge campaign has certainly been slowed by an apparent lack of resource. Fast-forward to today (when we’re being reassured by government that ‘Plan A’ to beat back covid is working), and those contractors who consider themselves to have a good defence against the loan charge should, by now, be deep into the resolution process.
Somehow however, we are still seeing preliminary skirmishes. So HMRC template letters are still being issued, and responses to HMRC are still being ignored. We can only speak for ourselves, but our advisory will not be allowing HMRC to kick resolution of the loan charge out into the long grass of the future, no matter how acute their staffing problems.
HMRC’s (potential) IR35 inertia will make the (eventual) blizzard worse
Similarly constraining, albeit this time to contractors, IR35 reform arrived in the private sector on April 6th 2021. This reform -- for the prudent parties in every supply chain -- has caused individuals, agencies, end-clients and perhaps even umbrellas, to look hard at their own positions and prepare for what many still think will be a blizzard of HMRC enquiries. Without doubt, the staff shortages in the government agency have undoubtedly slowed this blizzard, but the first snowflakes have been seen. We believe swift action from all parties is needed to stop drift from blocking future work opportunities for bonafide contractors. If HMRC will not react quickly, find an adviser who will.
And penultimately, in many ways, the Revenue is itself to blame for being stretched so thin. Before the pandemic they were engaged in the process of moving their staff into 13 regional centres, inflicting many a long or difficult commute from their existing offices. As expected, many senior and experienced HMRC staff took the opportunity to take a package and leave. The result is not just fewer HMRC staff, but an overall lowering of knowledge in our tax authority.
Pragmatism at HMRC has been proven; if only it could be channelled, redirected
Here’s the key. If this was replaced with a more pragmatic approach by HMRC to settling long-running enquiries, it would be understandable. But as it is, HMRC dogma continues to deny a fair settlement in many, many instances.
Indeed, our fervent belief is that if HMRC could show the same flexibility and ‘can-do’ attitude to sensible settlement terms as it did with covid relief, it would go a long, long way to restoring the trust that has been recklessly abandoned by the Revenue due to the campaigns I’ve outlined here; the misapplied IR35 and the misguided loan charge being chief among them.