Evidence submitted by Mark Alderton (tre0083)

Summary:

 

Introduction: I am submitting this representation as a taxpayer and beneficiary of public services. I have been a contractor for 10 years. I did not particularly want to become a contractor but since having been made redundant I have struggled to find another permanent role although have come close several times. When I first became a contractor, I engaged with what I thought was a convenient operating structure without the complexity of setting up a limited company with VAT, accounts, payroll, liability insurance etc. The tax advantage was attractive but not my motivator – not having been a contractor I did not have experience to weigh it against alternatives. The financial benefit of the tax advantage was muted by the fact that the scheme providers took almost 20% of the invoice value. I was impressed that the scheme was transparent to HMRC. The scheme promoters claimed explicitly it was “low tax risk” and told of problems of alternative contractor arrangements such as a limited company. The contractor arrangement I got involved with is a EBT loan scheme and is therefore impacted by the Loan Charge implemented in the 2017 Finance Act.

 

My reason for submitting evidence is to point out that the drive to increase tax compliance, although something I applaud, has led to some perverse outcomes. If taxpayers are going to be forced to pay large sums for apparent wrongdoing, then Government or HMRC need to provide clear and consistent guidance and HMRC need to implement that fairly and appropriately. I also hope to indicate some of the [hopefully unintended] consequences of HMRC policy in human terms.

 

 

  1. HMRC should act promptly on schemes they regard as problematic. HMRC had full information from my initial use of the scheme. My first letter from HMRC articulating disapproval was dated 23 November 2012 and I left the scheme shortly after. HMRC had almost 5 years to act before doing so. One of the selling points of the scheme was the fact it was transparent to HMRC with no hint of lying or mis-information. HMRC’s inaction sends an important signal and implies some measure of acceptance.

 

  1. Going through the settlement process is exceptionally cruel. The settlement has a hard deadline (imposed by the contractor loan charge) but when and how HMRC will respond is unclear. The response I have had is incomplete (it covers only a minority of years I requested settlement for). It is unclear if it was incomplete by policy or by error as the rationale is not explained – it does not even acknowledge the fact it is incomplete. Professional advice I have received advises me that the full response is also likely to be technically flawed – however I am unable to understand the technical issues. I have been left in confusion and terror not even knowing if settlement is even possible.

 

  1. There have been too many simple mistakes made by HMRC. For example; on two distinct occasions, HMRC failed to notice that an APN had been paid before it issued a penalty for non-payment. Given that I only have four APNs of which these two represent over 90% by value, this represents an extraordinary error rate. There have been other occasions where it has taken multiple letters to assure HMRC that payments had in fact been paid contrary to their thinking. I accept no system is perfect, but these mistakes are too frequent and take months to resolve. There have been several occasions when HMRC have not addressed a reasonable concern. For example, on one occasion HMRC stated I was too late to raise a question, even though I was repeating a question I had been raising since the start of the particular process. On another occasion HMRC attributed an APN payment to a different APN from the one I was expecting – indeed an APN I had not received. The result is that I been have left confused and concerned. I have been told that the only way to address these concerns to HMRC is via a Judicial Review which I understand costs several hundreds of thousands of pounds.

 

  1. Both the Loan Charge implemented by in the Finance Act and Settlement are disproportionate as they require much larger sums to be paid than the benefit gained by the scheme. They will put me, presumably by design, in a significantly worse position than an average taxpayer who never used the scheme, and is intended as a punishment. A punishment representing multiple year’s income is being applied to an activity where no court or tribunal has found as illegal or incorrect. For a government and its agency to impose a punitive punishment on citizens, without any judicial process should feel uncomfortable in a modern democracy. A settlement process which sought equivalency between the gain and the payment would at least be proportionate and have some ethical justification.

 

  1. The retrospective nature of the Loan Charge is deeply unfair. Had these schemes operated in secret then conceivably there could be a justification – but as it stands I can see no justification for making it retrospective. If these schemes were considered inappropriate in 1999 (from when the loan charge applies), then the legislation should have been enacted in 1999 or soon after. This retrospective approach is contrary to a normal sense of justice. I understand that technically it is “retroactive” rather “retrospective”, but this distinction is lost on the average person and makes little difference to its practical implications. It is grossly unjust, and the retroactive feature should be removed.

 

  1. With the implementation of the Loan Charge I have an invidious choice: settlement, paying the loan charge, or bankruptcy. Paying the loan charge does not solve the underlying tax dispute and in my case is likely to be significantly more expensive than settlement– therefore, in practical terms, the Loan Charge is being used coerce me into “Settlement” (assuming I can find the funds). Most definitions place settlement as part of a judicial process but is not true in this case.

 

 

  1. The interest rate charged by HMRC is disproportionate, being higher than UK Government Bond yields and even above the mortgage interest I pay (2.29%). The interest rate paid by HMRC is 0.5% rather than the 3% HMRC charges – it is not clear how this distinction is justified. HMRC should charge an interest rate which represents the government’s costs and the existing rate can only be construed as a fine as it does not represent the amount lost to the public purse.

 

 

  1. The investigation process over the past 5 plus years has put me in periods of depression and made me fearful of returning home where a “brown envelope” may be waiting. Indeed, I have vomited on my way home. Furthermore, if I do not settle, then I not only face the contractor loan charge, but I am advised that I am likely to face at least another 5 years of this onslaught. The length of process is callous.

 

  1. I have worked in roles in a high street bank where we have considered customers’ issues. I encountered scenarios very similar to some of the issues I mention in this submission (e.g. length of time passing before raising an issue with a customer, errors made by the organisation, slowness of response) and each case found in the customers favour. It may not be perfect, but the basic premise, backed by government regulation, is that customers must be treated fairly, even where the customer shares some responsibility (e.g. by defaulting on a loan).

May 2018