For being flawed and weak against promoters, but ruthless with contractors, it is itself which HMRC must reset

We would like to respond to the article published on Contractor UK, authored by HMRC’s director of counter avoidance directorate Jonathan Smith, “To warn against tax avoidance schemes, we at HMRC are putting our money where our mouth is.”

In the article, Mr Smith lists steps that HMRC has taken in taking to tackle the promotion of tax avoidance schemes, and we find these steps to be fairly unimpressive, writes Steve Packham, spokesperson for the Loan Charge Action Group (LCAG).

Impression versus reality

After all, the promotion of those schemes continues today, despite the Loan Charge and partly as a result of the flawed IR35 ‘off-payroll rules’ -- a framework which HMRC itself pushed to introduce.

No doubt due to media coverage of how promoters have faced no significant action, while the individuals mis-sold to have been pushed to suicide, Mr Smith’s article is a bid to give the impression HMRC is taking action against scheme promoters. But such action isn’t the reality.

Smith wrote: “We also want to appeal to the readers of Contractor UK for their help, in warning their peers if they suspect that they might be entering into an avoidance scheme -- and by reporting schemes to us so that we can use our powers to intervene quickly and protect other contractors.”

Meaningful

Well, about time. We’ve been calling for years for meaningful action against scheme promoters, and so what HMRC is proposing and what’s listed in the article is far from meaningful.

Smith says that HMRC now names schemes and promoters online, almost as if to suggest this action deals with the problem or stops the ongoing promotion of schemes.

Under the Finance Act 2021, these names are only added for a year and then removed, which is a farce. In any case, naming schemes and operators does nothing to help those who have already been hit with life-changing tax bills for having used arrangements that they were assured were fully legal and compliant at the time.

Questions for HMRC abound over its ‘naming and shaming’

In January 2023, HMRC named three schemes linked to billionaire Doug Barrowman, who is married to Conservative peer Michelle Mone. What has this achieved though, in reality? Absolutely nothing. Why has it taken HMRC years and years to take any action, despite the fact that the tax authority has known about the schemes being operated and those who were behind them? Why did the Revenue not act earlier, when it could have stopped people from being misled into using these arrangements, before they faced ruin? Before people took their own lives?

Smith mentions in his article that HMRC is issuing Stop Notices. Such a notice makes it unlawful for a person subject to that notice continuing to promote the scheme -- subject to that notice only, meaning it will not apply if the same promoter who promotes new or different schemes!

Flawed, weak, ruthless

As tax lawyer (and former member of HMRC staff) Osita Mba has said, the sub-text of this from HMRC is, in effect, ‘Stop cheating the public revenue (and defrauding your clients) with this scheme. But you’re free to cheat the public revenue (and defraud your clients) with other schemes until we ask you to stop.’

It's flawed and weak -- like everything else HMRC seems to be doing against promoters. And that inadequate action is in complete contrast to the ruthless way HMRC has treated those mis-sold their schemes, who cannot defend themselves.

What the government and HMRC should of course be doing -- and could if Smith really wanted to tackle promoters -- would be to stop the schemes in the first place, before they dupe people into using them, to save them later being hit with unexpected and unaffordable bills. That is the only action that would be meaningful.

Serious about stopping?

HMRC has a dreadful record for failing to shut down schemes, failing to warn people and even signing off years of tax returns without raising any issue, in many cases. Smith mentions that HMRC is “using much more real-time information to warn people.” The reality is that HMRC has chronically failed to use RTI to stop schemes as they start, which is exactly what HMRC should have been doing, if it was serious about stopping this whole problem.

So the HMRC director’s article for ContractorUK is more tough-sounding talk, but it’s utterly meaningless and does absolutely nothing to help those who were recommended and mis-sold these schemes. HMRC continues to pursue them ruthlessly, regardless of the fact that they took, and followed, professional advice or were duped into using these schemes (and in some cases were obliged to use them by recruiters and/or umbrella companies).

Promoters continue to get off scot-free, unlike victims

Smith will know, as director of counter-avoidance, that no promoter has been charged, never mind prosecuted, for promoting these schemes. Nor is HMRC asking them to pay a single penny of the disputed tax, despite them raking in millions of pounds in fees and making huge profits. The most galling thing about the loan charge scandal is that HMRC is demanding money that it knows people do not have; money that was paid in fees to these promoters, who promised to handle all their work administration and ensure their tax compliance.

Why, Mr Smith, are you not seeking these fees from the promoters? That would be a start if HMRC was at all serious about taking any meaningful action over scheme promoters.

That ‘reset’ objective, unpicked

In his article, Smith also states that HMRC “wants to reset and be collaborative partners with contractors.” We are understandably deeply sceptical about this, considering the way that HMRC has treated the tens of thousands of people affected by the loan charge; by the utter mess of the IR35 off-payroll rules and now the aggressive action linked to the Managed Service Company legislation, never mind the abusive way HMRC uses Accelerated Payment Notices, knowing full well that people cannot defend against them.

If HMRC and its counter avoidance director are serious about wanting to “reset” the relationship and build bridges with the contractor community, then a good start would be with an apology for HMRC’s past mistakes.

Seven mistakes we say the taxman has made

There are so many to choose from, here are just seven:

1. Coming up with the idea of a 20-year retrospective charge to cover up HMRC’s failures to act at the time, cynically taking away the basic right to defend tax disputes in court, then persuading ill-informed ministers to introduce it, without telling them it would cause bankruptcies and suicides.
2. An utterly unreasonable ‘settlement’ process, involving unaffordable sums and terms and forcing people to admit to ‘deliberate tax avoidance’ -- when we don’t believe that was ever the case.
3. A shameless gaslighting ‘behavioural insights’ campaign that sought to cynically portray people mis-sold schemes as deliberate tax avoiders. It’s a campaign that we think has been a key part in pushing ten people to kill themselves.
4. Blatant interference in what was supposed to be an independent inquiry (the Morse Review), and then desperately trying to cover up the interference by refusing Freedom of Information requests.
5. Administrative incompetence alongside callousness to taxpayer; incorrect calculations and inaccurate tax bills, inordinate delays in communication and failure to respond to people and their advisers.
6. The fact that HMRC officers signed off the tax returns of many people using schemes later subject to the loan charge, including contractors working for HMRC using these very arrangements.
7. The lack of any meaningful action against scheme promoters, while hounding their clients to the point of suicide.

Sorry seems to be the hardest word (for HMRC)

An apology for these seven mistakes would be a good start, if HMRC is at all serious about a “reset” and starting the long process of restoring trust with the UK’s contract and freelance workforce. It’s a workforce that has been HMRC’s number one target for many years and a single PR-driven article isn’t going to remedy that.

Should HMRC respond to this article, here’s a simple question for it to answer. Why is it that HMRC will sit down and do behind-closed-doors ‘sweetheart deals’ with huge corporates, but it refuses to meet with or negotiate with the Loan Charge Action Group, and demands more in tax than people ever would have paid at the time?

We have no idea why HMRC decided to instigate a war against contracting; we did not want to be here. If HMRC is going to end this, we would welcome it. But it is difficult to have faith in an organisation that has deliberately misrepresented the reality, misled MPs, and demonised an important part of the UK workforce.

If we are mistaken and Smith’s article is actually a genuine effort to stop targeting contractors and to behave in a more ethical and fair manner, we would welcome it. Perhaps a second step, after an apology, would be to meet with us.

Resolution, reach, response

A third step would be to agree to find a resolution to the whole loan charge scandal that continues to blight HMRC’s day-to-day running and reputation, as well as being a living nightmare for tens of thousands of UK families.

Smith finishes his article by saying, “It's over to you…we would like to respond to comments or questions about this piece, so please do come forward with your thoughts. We look forward to responding in due course”. Well, we’ve responded to you – here, and in a formal letter which will reach you in the coming days. We therefore look forward to your response.