Who doesn’t enjoy a tiny bit of schadenfreude from time to time? Especially when we’re seeing the misfortune of highly paid celebrities, business people and other ‘notables’ who have been caught aggressively evading huge sums of tax. And all while lecturing us taxpayers on why we shouldn’t do that ourselves.
But once the momentary pleasure of finger-pointing has passed, it’s worth reflecting on how this might affect you in your contracting. Because HMRC now has extraordinary powers to use a ‘pay up now’ sledgehammer to crack a ‘you might owe some tax’ nut. And make no mistake: you could very easily become that nut.
That’s because you are guilty.
It’s next to pointless to deny it. Because if the taxman says you might have evaded some tax, HMRC can now decide how much, dip their fingers into your bank account and remove it.
Because contractors and other taxpayers are being treated as outside of the law as it has been commonly accepted in the UK for a little while now – since 15 June, if you’re interested in dates.
Oh, did I forget to mention that is 15 June 1215.
"No free man shall be … stripped of his rights or possessions … except by the lawful judgement of his equals or by the law of the land."
Right now, it is aggressive tax avoidance schemes that are being targeted by so-called accelerated payments. But how long will it take before HMRC starts asking for IR35 money up front from contractors it suspects of being disguised employees?
The fundamental tenet of common law, of being presumed innocent until being proven guilty, is being undermined by HMRC’s new powers and its aggressive attitude with those using tax avoidance schemes. Schemes, it should be noted, that are totally legal under laws brought in by our elected politicians.
Contractors are now being bullied into accepting a settlement with HMRC without having the opportunity of making their case in tax tribunals or a court of law.
For example, This is Money reports that many of the investors in the Ingenious tax avoidance scheme have opted to settle with HMRC after receiving threatening letters. This is despite the scheme promoter’s intention to fight HMRC through the tax tribunals and courts to confirm that the Ingenious scheme is legal.
The issue here is not the rights and wrongs of tax avoidance and whether it is within the spirit of the law to exploit tax loopholes.
No, the rather frightening precedent is that the state has quite openly bullied citizens and taxpayers into adopting a course of action that may not be in their best interests; and done so over actions that have certainly not yet been proven to be illegal.
The law is the law. If there are any doubts about a scheme’s legality, it needs to be judged by the due process of the law. It should certainly not be the role of civil servants who suspect the scheme to bully, frighten and intimidate taxpayers into damaging their own financial – and in some cases – mental wellbeing.
HMRC has embarked on a course that takes it outside of the acceptable limits of the law.
And this is even before its new powers to demand accelerated payments and take money directly from taxpayers’ bank accounts comes into full effect.
Currently, only around 30,000 people are likely to be affected by the most draconian of HMRC’s new powers. But based on how it has treated the sophisticated Ingenious investors – frightening many into rolling over regardless of the law – what hope is there for the contractor on the street suspected of being inside IR35?
HMRC’s scary new powers are shortly to receive Royal Assent. And make no mistake about it: the lesson of every legal system everywhere in the world is that once organisations are given powers, those powers will be used. And then expanded far outside their original remit.
So, will HMRC start demanding accelerated payments from limited company contractors it suspects of being disguised employees under IR35. Will it be taking cash out of their bank accounts months or years before the contractor even gets a chance to defend themselves? Probably. Maybe certainly.