Taxman is ‘unfairly targeting low earners’
HM Revenue & Customs is unfairly targeting doctors, nurses and teachers with disproportionate powers that undermine the rule of law, a parliamentary report has claimed. The economic affairs committee in the House of Lords says thousands of low and middle-income earners are being pursued by the taxman over tax avoidance schemes they entered into, often at the behest of their employers. In a report today, the peers claim HMRC failed to make allowances for low earners who made naive decisions.
HM Revenue & Customs is unfairly targeting doctors, nurses and teachers with disproportionate powers that undermine the rule of law, a parliamentary report has claimed.
The economic affairs committee in the House of Lords says thousands of low and middle-income earners are being pursued by the taxman over tax avoidance schemes they entered into, often at the behest of their employers.
In a report today, the peers claim HMRC fails to distinguish between “contrived tax avoidance by sophisticated, high income individuals” and low earners who made “naive decisions”.
The committee, which counts former chancellors Lord Lamont and Lord Darling among its members, added that new powers had tipped the balance too far in HMRC’S favour, with taxmen becoming “increasingly aggressive”.
The controversy centres on HMRC’S loan charge power, introduced in the 2016 Budget, which enabled it to pursue workers who entered into “disguised remuneration” schemes going back as far as 1999. The committee said up to 200,000 people joined the scheme that allowed them to avoid income tax and NI by receiving salaries as loans that were unlikely ever to be repaid.
HMRC said it cost the Treasury millions of pounds and had always been considered a form of tax avoidance. It has already reached settlements with 5,000 people, recouping £500million.
But Lord Forsyth of Drumlean, the committee’s chairman, said retrospective charges flew in the face of Government protocol, which says backdating tax legislation should be done only in “wholly exceptional” circumstances. He added that some targeted taxpayers faced repayments of up to £80,000, leaving them “suicidal”. Many were NHS or local authority employees who had been denied the opportunity to enter into normal employment contracts.
The committee said it had heard reports of HMRC threatening individuals with bankruptcy, even if they “clearly had no assets to settle liabilities”.
Ministers were also urged to abolish HMRC’S ability to fine taxpayers who attempt to overturn its decisions in court, describing it as a “tax on justice”.
“This was brought in to deal with rich merchant bankers chancing their arm, but what it has done is it has caught tens of thousands of people who were told it was perfectly legal,” Lord Forsyth said.
“HMRC is coming back many years later demanding large sums of money. This is devastating the lives of middle and lower income individuals. Many have retired and cannot repay. It is grossly unfair.”
The committee said HMRC appeared to be prioritising individuals as it was easier to recover liabilities.
An HMRC spokesman said: “Parliament has given HMRC powers it needs to tackle businesses and individuals who do not pay their fair share, and it uses them responsibly.”