HMRC’s tough tax avoidance penalties a “tax on justice”, warns Lords committee

Taxman under fire for aggressive tactics, lack of accountability and handling of disguised remuneration loan schemes.

The taxman has been strongly criticised in a wide-ranging report by the House of Lords Economic Affairs Committee.

After years of Government’s promising action on tax avoidance, “this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect”, said committee chairman Lord Forsyth of Drumlean.

“High penalties, designed to deter some taxpayers from continuing appeals against tax liabilities, are a tax on justice.”

The Committee, which has representatives from the three major parties, have called for a review of all powers HMRC have been granted since 2012.

It also argues that taxpayers under investigation by HMRC should find it easier and cheaper to appeal.

How to complain to HMRC

The Government has dismissed the report, with a spokesperson telling the BBC it had taken “unprecedented action to crack down on [tax] avoidance and evasion” and noting that HMRC was already subject to ‘appropriate’ checks and balances.

‘Devastating’ impact on individuals

HMRC has come in for particular criticism for the way it has pursued individuals using disguised remuneration loan schemes.

People who used these schemes had their salary paid in loans, which didn’t need to be repaid, allowing them to avoid Income Tax.

When rules were tightened in 2016, HMRC asked users of the schemes to come forward, but from April 2019 it could levy massive bills.

Lord Forsyth described the crackdown as “devastating the lives of middle and lower income individuals, from the private and public sector (including the National Health Service) who used disguised remuneration schemes, in many cases being required to do so by their employers.”

The Committee has urged HMRC to ‘urgently’ review all loan charge cases to assess individuals’ ability to pay.

It has also argued that authorities should take action against those who promote such schemes, not just those who used them.

Government figures show that around 50,000 people used loan schemes, 65% of whom worked in ‘business services’ and just 3% in medical and education services.

20 ways to pay less tax: cut your Income Tax, Council Tax, and Inheritance Tax

Council Tax also criticised

Whilst tax avoidance has been long associated with wealthy individuals and celebrities, the Lords Committee has warned that HMRC has penalised "uninformed or naive decisions by unrepresented taxpayers”.

At a local level, councils have also been warned that their aggressive tactics are harming the most vulnerable and are even worse than those used by private companies.

The Money Advice Service wants councils to take a more ‘progressive’ approach, acknowledging that a third of those seeking advice for debt are behind in their Council Tax.

Citizens Advice wants the Government to establish an independent regulator for bailiffs.

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