HMRC accused of ‘utter hypocrisy’ over use of IT contractors enrolled in tax avoidance schemes

by Jeremy

HM Revenue & Customs (HMRC) stands accused of “utter hypocrisy” for hiring IT contractors enrolled in disguised remuneration (DR) schemes, despite being in the midst of a contractor-focused, anti-tax avoidance enforcement campaign.

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As reported by Computer Weekly on 18 February 2021 that MPs from the 240-strong Loan Charge All-Party Parliamentary Group (APPG) called out the tax collection agency for repeatedly dodging questions on multiple occasions about its alleged use of DR scheme-enrolled contractors in a letter to HMRC CEO Jim Harra. These occasions included during a November 2018 probe by the House of Lords Economic Affairs Finance Bill Sub-Committee. The Loan Charge APPG further claims questions it submitted to HMRC on this subject also went unanswered.

A series of freedom of information (FoI) requests were submitted to HMRC in 2019 and 2020 to ascertain whether the department and Revenue and its Customs Digital Technology Services (RCDTS) technology subsidiary had engaged contractors enrolled in DR schemes while working for it.

And the responses to these FoI requests confirmed that HMRC and its RCDTS subsidiary did engage at least 15 contractors that used DR schemes between 2016 and 2020.

HMRC responded to the letter with a statement to the media stating that it is “possible for contractors to use disguised remuneration without the participation or knowledge of their engager” and that it has moved to “promptly terminate the relevant engagements” upon discovery of any HMRC or RCDTS contractors using disguised remuneration schemes.

Even so, Loan Charge APPG MPs are now calling for HMRC to face investigation for a possible breach of the civil service code, on the basis that it neglected to pass on information about its contractors’ use of DR schemes to the House of Lords Economic Affairs Committee once it came to light.

Such schemes typically see contractors paid in part for the work they do in the form of non-taxable loans and – in years gone by – were marketed to individuals as tax-compliant means of bolstering their take-home pay.

However, HMRC is of the view that because these loans were never intended to be repaid, they should be reclassified as income and taxed accordingly. And since November 2018, it has been pursuing contractors to refund the tax it claims they avoided by participating in these schemes from December 2010 onwards, through its Loan Charge policy.

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