HMRC are continuing to intensify their battle against businesses that they perceive, rightly or wrongly, to be evading or avoiding tax. This is despite a few token gestures that HMRC has made to businesses struggling during this Coronavirus pandemic, such as suspending some investigations into suspected tax avoiders as reported in the FT, temporarily of course, until the current crisis has eased. Writing to taxpayers currently under investigation, HMRC told them that it would not request information or documents, or press for responses to previous requests, during the lockdown period.
While it may be a relief to businesses who are struggling at the moment to have the threat of an HMRC investigation lifted, they have been warned they should not be lulled into a false sense of security, with the tax authority no doubt planning on restarting their heavy handed enforcement measures as soon as life begins to return to normality and they can resume normal service; HMRC is certainly not writing off any taxes that are due, nor is it stopping any investigations. Fiona Fernie, tax dispute resolution partner at accountancy firm Blick Rothenberg, spoke on this issue:
“Putting off HMRC’s queries until after this difficult period is over may not be as good an idea as it sounds,
“If tax is due, it is still going to be due when we come out of this,
“[When the lockdown ends] many will need to be concentrating hard on reviving their business and HMRC’s questions will inevitably distract attention from that at a time when loss of focus on business management could be potentially devastating.”
While an HMRC spokesman said that “HMRC will always take tough action against fraudsters who attempt to deprive the UK of the public funds the government needs to support the nation at this difficult time.”
This sort of language is, unfortunately, all too common with HMRC; liberally labelling unnamed member of the public as ‘fraudsters’ and then using the current crisis as an emotional call for support for the promised ‘tough action’.
Over the last decade, HMRC has taken an increasingly tough stance against those that it identifies in its own often casual judgement as potential wrongdoers, forming hundreds of task forces to deal with alleged incidences of tax evasion, focusing on a diverse range of industry sectors that it thinks may be hotbeds of tax evasion, such as dog breeding, adult entertainment and double glazing. It’s somewhat ironic that this all began under a new, supposedly liberal, free-market supporting “Conservative” government. Since May 2011, HMRC has introduced a total of 209 task forces, aiming to team up colleagues from different HMRC departments to carry out intensive investigations and enforcement operations against both individuals and companies, targeting sectors and industries where they believe there is a significant risk of non compliance with tax legislation. A spokesman for HMRC said that:
“Our role is to ensure that everyone pays the tax they owe so that we can continue to fund our vital public services. Task forces are just one of the tools at our disposal to target the non-compliant to level the playing field for the honest majority, and have proved effective, with more than £2bn brought in since 2011.”
Once again, the HMRC PR machine justifies its actions with the heavily spun emotional call “so that we can continue to fund our vital public services”. It is not in fact HMRC’s job to fund the public services; they have no role to play at all in deciding how the funds they collect are defrayed. HMRC’s job is to assess and collect taxes in accordance with laws passed by Parliament. They are subject to those laws in the same way as everyone else and, like everyone else, susceptible to breaking those laws whether by accident or deliberately. Their focus should perhaps be more on keeping their own house in order rather than high handed and judgemental references to “the honest majority” of the rest of us.
It is worth a brief word here on the subject of ‘tax avoidance’. This impossible to define pejorative expression implies behaviour that is legal but somehow unfair; pejorative because it requires a certain presumption of the moral high ground to assert better judgement than the law itself or even than those entrusted to enact the laws of the land. To be fair, there are instances where people have entered into highly artificial arrangements to reduce their tax burden. But the proper way to deal with these arrangements is through the courts; the courts will decide if something which may appear to a layman or an HMRC officer to be artificial is in fact legal (and therefore neither evasion nor avoidance) or is in fact illegal, and therefore evasion not avoidance. In both outcomes, there is actually no such thing as ‘tax avoidance’. It is a sort of ‘in limbo’ term applied by HMRC to things they don’t understand, at best, or, at worst, simply don’t agree with.
This war by HMRC on tax evasion and avoidance will no doubt only increase in its intensity as the government has to find new ways to make up for revenue that has been lost due to the current Coronavirus pandemic and subsequent lockdown, with HMRC reporting a drop in tax revenues of £2.2 billion in the month of March, compared with the same month last year. Chancellor Rishi Sunak had already announced in the Budget that around 1,300 new compliance staff would be hired, aiming to claw back over £4 billion in lost revenue over the period of the current parliament. HMRC’s campaign to uncover tax evaders or so-called avoiders has seemed at many times like a war on business, especially small to medium sized businesses.
In what many may consider a desperate attempt by the government to raise enough tax revenue to keep the bloated social security system afloat for a few more years, HMRC increasingly end up victimising the very people who are giving them that money, the very hand that feeds them. Even the mafia know that when you extort somebody, you should never take too much from them, making the protection payments too onerous, otherwise the victim loses any incentive to run their business at all and simply shuts up shop, going out of business completely rather than working hard only to pay all of their profit out in “tribute” – another word for tax. HMRC would do well to take a page out of the mafia’s book, at least in this regard.
HMRC’s pernicious and aggressive attempts to squeeze more money out of businesses are often extraordinarily harmful to all involved: business owners; their employees; and their customers alike. Just recently HMRC set the supermarket Iceland in its crosshairs, launching a probe into allegations that it had underpaid its staff to the tune of £21 million, and handing Iceland a bill for the amount. Of course companies should be taken to task when they pay employees less than the minimum wage, but in the case of Iceland that wasn’t the case. Iceland simply had a totally voluntary savings scheme, for the exclusive use of its employees. When employees entered the scheme, which was again voluntary, and for their own benefit, they would have some of their wages deducted each month just like a pension, and could then withdraw the money at a later date, usually before Christmas. According to HMRC’s reading of minimum wage law this meant that technically the employee’s pay was now below the minimum wage and ordered the company to pay back £21 million to its employees and also stated that Iceland’s requirement for staff to wear “sensible shoes” was technically illegal as it forced workers to buy their own shoes for work. Most people would regard HMRC’s actions as an assault on common sense and a public disgrace.
It seems unlikely, due to HMRC’s ‘intervention’ in this case, that these types of savings schemes continue to be offered to workers by their employers. In an article in The Times, boss Malcolm Walker accused HMRC of “harassing” Iceland. He’s not alone; businesses in every corner of the country feel continuously a target for harassment by HMRC.
The problem is sadly exacerbated by the drip-drip of the ongoing relentless HMRC PR campaign with ‘public information’ communications prevalent everywhere from posters on public transport to voice-overs on local and commercial radio.
This harassment may soon go even further, with HMRC seeking to extend their powers of enforcement, making company directors (who already bear the lion’s share of responsibility for the finances of their businesses, the employment of most of the UKs private sector workers and most of the taxes paid) personally liable for tax liabilities should the company go under, if HMRC suspects that there is a possibility of tax being deliberately avoided. These new measures, part of draft legislation for the Finance Bill 2020 that were being debated in parliament before the Coronavirus pandemic put things on hold, are truly frightening, threatening to fundamentally change the definition and nature of companies and their directors, if they are passed into law.
HMRC’s decade long war on business shows no sign of slowing down anytime soon. The Coronavirus crisis will only serve to make HMRC ever more eager to get at your business’s vital cash reserves, as they attempt to make up for revenue lost due to the lockdown and the resultant slowing down of the economy. However, they need to be aware that their actions are slowly grinding down business owners, and that they may just force one too many more business owners to shut up shop, in which case they’ll end up losing far far more than there is to gain. It will truly be a case of the parasite killing its host.
We are keen to help the business community in general to redress the balance of power and specifically to stand up to any unreasonable behaviour on the part of HMRC. Do please get in touch if you feel you have been targeted by HMRC in an unfair way. We are willing and able to help. We will leave no stone unturned in our quest for fairness, justice and restoration where necessary.