2019: HMRC targeting small businesses & introducing the retrospective loan charge tax

All Paul, a firm of Leeds accountants operating in north Leeds helping individuals and smaller owner managed businesses in all sectors to meet their compliance responsibilities, reports that in 2018, HMRC generated £28.9bn from HMRC enquiries which is expected to increase to over £30bn in 2018-19. This means that the chances of being selected for an enquiry are increasing. They commented:

“Small businesses are easy targets. They represent more than 95% of businesses in the UK. Individual taxpayers are also easy targets for penalties.

“They are typically scared of HMRC and therefore accept demands for extra tax and penalties without too much challenge. It is a bit like taking candy from a baby. HMRC often tries to increase their tax take by imposing penalties”.

In January 2019 the FT reported that contractors in many sectors had been receiving HMRC demands under a new loan charge.

Loan schemes and the HMRC’s loan charge are defined on the government website. The charge is a tax on loan schemes (‘disguised remuneration schemes’) which had been recommended to some self-employed people and contractors including nurses and social workers by tax advisers and accountants, The tax could be applied to income from the past two decades and was due to come into effect from April 2019.

Campaigners won a review into the impact of the loan charge, after an amendment to the 2019 finance bill was tabled by Sir Ed Davey a consistent critic of the tax (left). It was backed by a cross-party group of more than 30 MPs. A fair outcome, he thought, would be for the charge to apply on loans taken out from the date when legislation was mentioned in the 2016 Budget.

Tom Wallace, head of tax at WTT, an advisory body, said: “Most promoters were charging individuals between 15-20% to join the scheme, which means for a client with a contract of £150,000, the promoters received a payment of between £20,000 and £30,000 a year (Financial Times).

In April an enquiry conducted by the Loan Charge All-Party Parliamentary Group All-made several serious charges (see page 74), including “a deliberate and cynical attempt to mislead . . .  startlingly dishonest misrepresentation by HMRC and the Treasury”

AccountingWeb noted that in a section marked ‘HMRC conduct overall’ stated: “HMRC’s conduct with regard to the loan charge indicates that it is an organisation out of control, urgently needing better and proper scrutiny and genuine accountability.”

It quoted the House of Lords Economic Affairs Committee’s November 2018 report which clearly stated that: “HMRC has a range of powers at its disposal to deal with promoters of tax avoidance schemes, but we have seen little evidence of action taken against those who promote disguised remuneration schemes. In the absence of publicised actions, HMRC appears to be prioritising recovery of tax revenue over justice by targeting individuals, rather than promoters (who could be considered more culpable), so it can more easily recover liabilities”

On page 85, clause 334 said “It is also clear from their own statements that that the real reason for the Loan Charge is to bypass the legal process and avoid “the need to litigate”. This means denying taxpayers the right to challenge HMRC’s claims and the right to due process, which is wholly wrong and a very worrying precedent”.

In May 2019, after learning of the latest suicide of an individual facing the loan charge the HMRC referred itself to the Independent Office for Police Conduct which oversees certain serious complaints about the conduct of tax inspectors.

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