During his Budget announcement in March, the Chancellor released the Treasury’s plans to allow HMRC to debit cash from taxpayers’ bank accounts in the name of curbing tax avoidance; however what implications do these plans have for contractors?
It has not been all smooth sailing for the Chancellor. The cross-party Treasury Committee expressed “considerable concern” following this years’ budgetary announcement by calling for greater scrutiny of the plans and the potential fraudulent activity which could arise, as well as the re-introduction of the discredited Crown Preference Rule. Yet, as pointed out by the Chancellor in his Budget statement, the rights being given to HMRC are just similar to those already in place across other Western countries, with the idea of bringing in £4bn for the Treasury.
For contractors who are liaising with HMRC on their taxation – whether that’s due to claims of avoidance or amounts paid – this ability to debit funds directly from business bank accounts could jeopardise that business by potentially putting it under undue financial pressure, affecting credit scores and contract work being undertaken.
There are an estimated 65,000 legacy UK tax avoidance cases, with the HMRC winning around 80% of all cases it takes to court, what needs to be considered is how the new powers could mean contractors and businesses are placed at a higher risk when looking to file a dispute. This is despite Mr. Osborne’s assurances that “if people feel they’ve been wronged, they can of course go to court. If they win, they get their money back with interest.”
However, what contractors need to be aware of is that the HMRC will only be able to debit accounts of those who owe over £1,000 of tax and they will be left with a minimum of £5,000 in their account. This move aims to reduce any criticism that HMRC may receive should they bankrupt individuals from the harsher measures.
The cross-party Treasury Committee highlighted issues such as:
- There would be no independent arbiter proposed, instead just “safeguards” for HMRC
- The risk of unfairness particularly with joint accounts
- The lack of clarity about previous contact with taxpayers regarding their payments or ongoing case file
- There are already sufficient powers are in place to ensure tax payments and retrieving funds where appropriate
- How the possibility of injustice of individuals such as contractors outweighs the alleged benefit of the overall plan
The outlined plans are not the end of the story, as the Treasury and HMRC will look to consult with the cross-party committee, as well as key influencers. This is the opportunity for contractors, high-worth individuals and businesses to liaise with their constituency MP to be able to say no to the plans. They can also look to organisations like One Click Umbrella, who can deal with all PAYE and National Insurance contributions, and ensure it is all IR35 compliant.