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Could the Lords report be a catalyst for change inside HMRC?

At last, there has been a welcome development on the tax front, and one that in time could perhaps even pave the way for positive changes in how contractors and all UK taxpayers are treated by HMRC.

Last week, a House of Lords report focusing on the powers of HMRC and examining whether taxpayers are treated fairly gave a damning indictment of its approach.

The 67-page publication describes HMRC’s attitude towards taxpayers in recent years as ‘aggressive’ and voices concerns about the behaviour of some staff, which ‘falls well below the standard set in the Charter.’

Such is the level of concern about how HMRC conducts itself and its lack of accountability, the report recommends an independent review of the taxman’s operations. It also urges HMRC to ‘listen more carefully’ when preparing to introduce tax legislation, which could allude to IR35 reform.

Given that the Government ignored huge resistance to IR35 changes in 2017 – and a lot of constructive advice – before recently announcing further reform will be enforced in the private sector from April 2020, it’s perhaps too little too late; that is unless the Chancellor performs his biggest tax U-turn yet.

The report makes it clear the Lords Committee members believe the taxman has been given too much freedom since the Powers Review in 2012. In the Lords’ opinion, HMRC must not only be held accountable for its actions but should also have its powers evaluated after five years and the findings made public.

The Lords report does assess the entire tax landscape but in parts focuses specifically on how contractors are treated. Following a roundtable meeting where HMRC’s powers were discussed, the review highlights issues around ‘targeting the wrong taxpayers’. One of the roundtable participants reportedly raised the point that HMRC’s and contractors’ perception of employment and self-employment are quite different. Without a doubt, this is an issue that must be resolved.

Calls were also made for HMRC to ‘urgently’ review ‘all loan charge cases where the only remaining consideration is the individual’s ability to pay.’ It condemned HMRC for viewing contractors as a soft target compared to the promoters of these schemes.

Committee members also raised the possibility that HMRC’s aggression could be a result of being tasked with raising tax receipts with fewer resources. If HMRC’s poor judgement and inability to ‘be fair to taxpayers and act in accordance with Charter values’ is a result of staffing issues, it is a state of affairs unlikely to cause sympathy among contractors.
As welcome as the recommendations in the Lords report are, very few will come as a surprise to contractors, who have felt the full force of HMRC’s aggression and tendency to adopt a ‘guilty until proven innocent’ approach when attempting to enforce IR35 compliance. It’s not the first time HMRC has been accused of being too heavy-handed either. It was only last year that 95% of contractors told Qdos they believed HMRC’s tactics were aggressive.

It’s also highly unlikely that independent workers will be shocked to hear that The Financial Secretary to the Treasury, Mel Stride, declined an invitation to give evidence in the inquiry; contractors have grown accustomed to HMRC’s view that it doesn’t need to explain itself.

Mr Stride’s refusal to cooperate will be viewed by contractors as yet another indication that at this very moment in time, HMRC isn’t interested in listening to reasonable and well-informed opinions, even from those who aren’t in the taxman’s sights.

So far, HMRC has remained predictably quiet in response to the Lords report, although it was quick to defend the level of service provided by staff, which was questioned. A spokesperson told Civil Service World that the organisation sets “very high professional standards for our compliance officers, and we take meeting those professional standards very seriously.”

Only time will tell as to how much longer HMRC will continue to operate this way. For contractors who lack faith in a Government that has made raising tax receipts a priority, it could take something more concrete to convince them that change will happen anytime soon.

Or the very fact HMRC has received this public dressing down from the House of Lords could be a pivotal moment. For the first time in what feels like a long time, contractors have people onside. And who knows, in years to come, the Lords report could turn out to be the first step towards improvements in the way they are treated by HMRC.

By Contractor Weekly

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