Contractors who use tax avoidance schemes are facing a situation in which HMRC acts as judge and jury on their actions following the approval of the Finance Bill 2014.
James Abbott, founder and head of tax at contractor accountant Abbott Moore, highlights that both follow-on notices and accelerated payments have been approved and will be enforced by HMRC.
“Contractors face higher penalties if HMRC deems their tax avoidance scheme to be similar to another that has been successfully challenged in the courts, including the first tier tax tribunal,” says Abbott.
“If a contractor chooses to fight and later loses, they face a higher penalty. Not only that, but HMRC can also now force certain types of DOTAS (Disclosure of Tax Avoidance Schemes) users to pay now and argue later.”
Abbott notes that the proposals have come into force almost unchanged. The discussions during the committee stage reiterated many of the concerns tax professionals had about the proposals, but the government did not budge.
“The committee [of MPs reviewing the bill] acknowledged that it was widely commented that there was insufficient time for proper consultation on this new legislation, although there is broad support for the intention of the measures,” continues Abbott. “However history tells us that poor legislation causes more problems than it solves.
“What is so dangerous for all taxpayers, including contractors, is that the committee stated in these minutes that the follower notice legislation in particular ‘departs from fundamental principles in our legal system’.”
Abbott adds that contractors may well be deeply concerned that the government is prepared to legislate in this way, effectively making HMRC ‘judge, jury and executioner’.
“Furthermore, on the accelerated payment notices, the Treasury maintains that this legislation is not retrospective because the tax liability remains unchanged. The scheme either works or it doesn’t. But who holds the money whilst the arguments progress has been changed?” The answer is the taxman.
“That is retrospection and I struggle to see how it is not, particularly as contractors are reminded that this could affect arrangements that are already registered under DOTAS but are within the enquiry window.”
Abbott concludes: “Unfortunately there is little positivity to be had. I am not sure even concerns raised by committee members during the meeting were fully acknowledged.”