HMRC, fair?!

This article was initially published by Taxation Magazine on 30 May 2023. The original can be viewed here.

In April this year, hundreds of (ex)clients of accounting firm Apostle Accounting (AA) received letters from HMRC stating that the tax rebates claimed previously were incorrect. As a result, the department is asking these taxpayers to repay often many thousands of pounds in relation to rebates claimed over a number of years. I understand that in some cases, the claims go back to 2016 tax returns.

The tax legislation
Ultimately, the submitted tax return is the taxpayer’s responsibility even when they had given the accountant authority to file on their behalf.

There are a number of details in relation to AA that are outstanding, including but not limited to the ins and outs of the agreement between AA and its clients, whether the clients were required to check and approve their tax returns, and the level of any discussions held with the clients regarding allowable expenses. Some of this is detailed on the BBC website at tinyurl.com/4sjj78ks.

Having reviewed several articles and websites including content from the taxpayers themselves, it seems that not one taxpayer has suggested that the returns were filed without permission. While I can understand the frustration that these taxpayers are feeling, the bottom line is unfortunately that they were responsible for checking and agreeing the figures claimed.

This does not necessarily mean I agree with the bottom line and, in some cases, reliance on an adviser is a valid reason for making an error. Often though, a taxpayer might have to go to the tribunal to win this point. The aim of this article is to compare the treatment of these clients with those who entered into tax avoidance arrangements – and were then subject to the loan charge.

Differences
The following points summarise the AA ‘scandal’:

• Taxpayers engaged accountants to assist with their tax returns.
• The accountant is said to have suggested that the taxpayers were eligible for certain tax rebates.
• Clients were asked for relevant information. Documents were given to the clients explaining that it was their responsibility to ensure that information provided was ‘honest, accurate and full’ (see tinyurl.com/4sjj78ks).
• The accountant prepared the tax returns.
• It is understood that the clients approved the returns and the returns were filed with HMRC.
• Several years later, HMRC determined the taxpayers were ineligible for the rebates and issued letters claiming back the money.
• Some taxpayers have tens of thousands of pounds to repay.
• Many taxpayers have complained to their MPs about this treatment by HMRC and blamed their reliance on AA.
• The total number of taxpayers is in the hundreds and possibly thousands.
• The MPs wrote to HMRC and in a meeting in May 2023 ‘HMRC had agreed to look at ways to help people who had received large tax bills’ (according to a report on the BBC tinyurl.com/53upnu5f). This was less than two months after the ‘scandal’ hit the media.
• The firm claimed ‘HMRC had reviewed Apostle’s approach to the expense claims in 2019 and found it to be acceptable’ (see BBC report: tinyurl.com/486m73nj).
• HMRC has stated that taxpayers will not be prosecuted or penalised (see East Anglian Daily Times: tinyurl.com/yp2s6cw4) and a regional fraud squad is investigating the accountancy practice (see BBC report: tinyurl.com/ycxdn62p)

Now, let’s compare this to the various tax avoidance schemes, specifically to those arrangements where loans to third parties were involved.

• Taxpayers engaged accountants to assist with their tax returns.
• The accountants are said to have suggested that the taxpayers were able to use certain tax arrangements to reduce their tax liabilities.
• Clients were advised that the arrangements were legal and in some cases that ‘HMRC approved’.
• The client agreed to enter into the arrangements, without necessarily understanding the technicalities.
• Taxpayers were advised that the arrangements may be challenged by HMRC.
• The accountant prepared the tax returns.
• The clients approved the returns and the returns were filed with HMRC.
• Several years later, HMRC determined the arrangements did not work as they were meant to.
• Because HMRC was out of time to raise assessments and claim back the tax saved, new legislation was introduced for tax loans outstanding on 5 April 2019.
• Some taxpayers have tens, if not hundreds of thousands of pounds to repay to HMRC.
• Many taxpayers complained to their MPs about this treatment by HMRC and blamed reliance on their accountants.
• The total number of taxpayers is in the tens of thousands and at least ten have committed suicide over the life-changing sums due resulting from the implementation of legislation to cover up HMRC’s lack of legal and timely intervention.
• An all-party parliament group represented taxpayers against HMRC and managed to obtain an independent review of the legislation. This restricted the time period HMRC was able to go back to. This helped some taxpayers, but others still face losing their homes and livelihoods to pay HMRC.
• To date, HMRC has not ‘sat down’ with MPs to ‘look at ways to help people’.
• HMRC’s acknowledgement of the impact of the loan charge has simply been (paraphrasing slightly) to promote a greater awareness among their staff of potential mental health issues for those affected. The department refuses to acknowledge the part it has played in causing those issues.
• At least one avoidance arrangement had been reviewed by HMRC in the early 2010s and been found not to be notifiable under DOTAS, but was still then caught by the loan charge because ‘reasonable disclosure of the use of the tax avoidance scheme’ was not made to HMRC.
• HMRC has been given rafts and rafts of powers to tackle promoters but no one has been charged in relation to disguised remuneration schemes.
• Going back to AA, HMRC appears willing to ‘help’ taxpayers – although I suspect this is going to be through time-to-pay agreements rather than writing off tax bills. When discussing this apparent unfairness in treatment with a non-tax person, there was genuine confusion at the different approaches HMRC is taking despite the similarities in situations.

Why the difference in treatment
Bottom line, follow the money. The loan charge affects tens of thousands of taxpayers, each owing on average over £100,000. This is according to a survey of 1,083 people by the loan charge all-party parliamentary group in May 2021 (tinyurl.com/lchappgsurvey) and this is a representative average given my experience dealing with those affected, looking at survey results and speaking to other advisers. By contrast, the AA rebate claims relate to perhaps a few thousand people owing possibly tens of thousands of pounds or ‘550 people have stated they owed or had already paid HMRC money totalling more than £2.5m so far’ (tinyurl.com/53upnu5f) – about £4,500 per person.

Clearly the loan charge brings in more money. It seems clear that when there is more money to chase HMRC will quote legislation, for example in its policy paper HMRC issue briefing: settling disguised remuneration scheme use and/or paying the loan charge, it says: ‘Individuals are personally responsible for paying the right tax under UK law and people who use DR schemes are required to declare all of their taxable earnings … on their tax return’ (tinyurl.com/hmrciblc). But it will ignore the fact that the department may have been complicit in not only engaging contractors using relevant arrangements – as reported in The Guardian (tinyurl.com/bdeyzj5h) – but also compounding the issue by implementing the loan charge.

Where the amount of money is in contrast negligible, HMRC appears to be more conciliatory and flexible, regardless of the income and earning power of the taxpayers involved.

There are two obvious reasons that HMRC has not instigated retroactive legislation in relation to the AA clients:

• research of various articles and posts suggests HMRC is going back to 2016 (I assume 2016-17) so the department had until April 2023 in time to raise assessments for that year without asserting deliberate behaviour; and
• reclaiming tax rebates in relation to (self) employment expenses is not nearly as lucrative as penalising taxpayers for loans taken out over a decade ago.
• Where tax avoidance arrangements are involved, HMRC believes it will have the backing of the public, the politicians and the media and can therefore do what it likes. Here, the position might be less clear cut.

But the AA case is still young. If HMRC has done it once, what is there to stop the department implementing catch-all retroactive legislation and completely throwing the rule book out of the window?

A really sad thing is that HMRC’s recent changes to its charter (tinyurl.com/hmrccharteroct22) mean that it no longer agrees to ‘treat everyone fairly’. Instead, it states: ‘We’ll work within the law to make sure everyone pays the right amount of tax’ [and we will change it when we feel there are significant additional funds to be obtained regardless of how the taxpaying public and the trust in HMRC will be affected].

It is time HMRC is held to account for its actions.

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