Contractors who are using loan-based tax avoidance schemes, or who have used a scheme in the past, are the subject of HMRC’s latest anti-avoidance campaign, Spotlight 26: Contractor loan schemes – too good to be true.
The campaign warns contractors that: “HM Revenue and Customs (HMRC) view is that these schemes don’t work and strongly advises any contractor or freelancer who has used such a scheme to withdraw and settle their tax affairs.”
The taxman goes on to threaten contractors who fail to settle with even higher costs: “People who settle with HMRC avoid the costs of investigation and litigation and minimise interest and penalty charges on the tax which should have been paid.”
According to ContractorCalculator CEO Dave Chaplin, HMRC is using scare tactics and bullying language to frighten contractors into making a tax settlement when the taxman has not actually proved by due process through the tax tribunals and the courts that they have to".
“HMRC is sailing very close to the wind with its claim that the schemes don’t work – how can it possibly know this without testing each scheme in the courts?” believes Chaplin.
“There are some loan-based tax avoidance schemes that are not as robust as others and contractors using these schemes could find HMRC successfully challenges them in tax tribunal. As a result, the contractor members of such failed schemes may have to pay out significant sums in unpaid tax.
“However, the flip side is true, and there will be come schemes that cannot be successfully challenged by HMRC.”
Chaplin’s concern is that the taxman is acting as judge and jury, insisting that contractors settle without following due process: “Tax avoidance is legal – anyone who pays into a pension scheme is guilty of it! But HMRC’s powers are becoming increasingly draconian, and taxpayers including contractors are being asked to pay tax they do not yet owe.”
He warns contractors who have used or who are using tax avoidance schemes to expect an Accelerated Payment Notice (APN), and urges them to start setting aside cash in case they receive a demand from HMRC.
“A blanket statement saying that all schemes will probably be challenged and fail to win in court because in the taxman’s words ‘it sounds too good to be true’ is simply not true.”