Finance (No.2) Bill

Written evidence submitted by a person who wishes to remain anonymous (FB 27)

1. Summary - I am an IT contractor who along with tens of thousands of other freelance workers is facing financial ruin if the ‘2019 Charge’ is allowed to be passed in the Finance Bill introducing what is effectively 20 years of retrospective taxation.

2. Background - When I started contracting in 2001 I worked through my own limited company as this seemed to be the expected way to operate as a contractor. I engaged a large firm of accountants who dealt specifically with the contracting market. I however found that this was a massive overhead. With every piece of financial paperwork they submitted to me for approval they stated that the onus was on me to ensure the figures were correct. I have always been diligent with my finances in respect of submitting tax returns etc. so I checked all the paperwork thoroughly. However I found that the majority of the figures were incorrect. This additional work that I was having to do was not something that I had anticipated and it was eating into my free time of which I did not have a lot due to a long commute into London. A colleague of mine suggested that I work through an umbrella company which would remove the admin overhead and mean that all I needed to do each month was submit a timesheet. I met with the representatives of the company that my colleague recommended and they stated that the scheme which they operated had been passed by 5 QCs who were experts in tax, the scheme was approved by HMRC and in a worst case scenario the scheme would have to be closed if HMRC changed the rules. They specifically advised me that HMRC could not retrospectively claim tax if they changed the rules at any point. On this basis I felt that I was doing the correct thing and was not breaking any rules or putting myself at risk.

3. The monies that I earnt as a contractor were placed in an Offshore trust and then I received a salary on which I paid tax and N.I. and additionally loans from the offshore trust were paid to me. I was advised this was a completely legal tax efficient way to work.

4. Instructions I received from the company who operated the scheme were to ensure that accurate Self-Assessment Tax Returns were submitted each year. I ensured that these were submitted on time with accurate information and in the first few years the scheme even had a Tax Avoidance reference to enter on the Tax Return. At all times HMRC had all details to hand regarding the scheme and I felt that as the scheme had a HMRC reference that this was all approved by HMRC. I have always been completely transparent with HMRC regarding my working arrangements and income. I even received rebates on some of the tax returns that I submitted over the years.

5. It wasn’t until many years after being on the schemes that HMRC started to send letters stating that they felt that I hand underpaid tax and in their opinion that the schemes ‘did not work’. At no point have HMRC stated that these schemes are outside of the law and they have allowed me to continue using the scheme since 2001 without calling a stop to the scheme. In fact there are still many companies advertising these schemes to contractors and HMRC are doing nothing to stop more contractors taking up these schemes. If HMRC had the intention to penalise people working within these schemes they should have sent a strongly worded letter at the time stating that they are illegal to anyone on one of these schemes. The fact that they worded the letter saying that they felt the schemes ‘did not work’ implies that they were not illegal.

6. I now understand that in the latest Finance Bill that HMRC intend to introduce something known as the ‘2019 Charge’ which is trying to bring in retrospective taxation for any freelance workers who have worked through these schemes. If this is introduced unchallenged in the Finance Bill then HMRC will be retrospectively claiming tax going back to 1999, in other words 20 years retrospective taxation.

7. HMRC are trying to change laws\rules today but then enforce the change retrospectively and to me retrospective law changes seem fundamentally and morally wrong. If HMRC had advised me at the time that the scheme was illegal I would immediately have stopped using the scheme. Never in my life have I intended to break any laws and as far as I am aware these schemes were within the law. The Finance Bill seems to allow HMRC to retrospectively change the law but there is no way that I can retrospectively change my actions from 20 years ago, which I was told at the time were legal.

8. HMRC are trying to not only claim the tax but are also adding interest and charges and for me this could mean a bill of anywhere from £100,000 to £180,000 for the years from 2006 which is money I simply do not have.

9. I wrote to HMRC in August 2017 asking HMRC for the figure which they ‘feel’ I owe in full and final settlement. All I have received so far is stalling emails advising my request is being dealt with or it has been passed to another department. 5 months has passed and they cannot tell me how much I owe. If their legal position was clear I would have thought they could just extract the figure in seconds from their database. The fact that 5 months later they are still stalling in giving me the figure makes me think they are further trying to change rules or the law to suit themselves. If they do not know how much I owe this seems to be very much at odds with their motto ‘Tax does not need to be taxing’. What chance have I of knowing where I stand if they themselves cannot come up with a figure. I cannot go on living under this cloud and the mental stress that this puts me under. At the moment I am worrying that I will have to tell my family that our future means we will have to lose all that we have worked for because of a decision that I made on what at the time was probably correct advice.

10. As a contractor I do not benefit from holiday pay, sick pay, bonuses, pension or any of the other benefits received by permanent employees. However if I have to pay the retrospective tax going back to when I started on the scheme in 2006 then I will be far worse off than if I had worked as a permanent member of staff. In fact with the amounts that I anticipate HMRC trying to penalise me with then it is highly likely that I will have to sell my house and move into rented accommodation with my family, cash in my pension or both. If I have to declare myself bankrupt then I will find it impossible to find work in the financial sector where I specialise. I am facing losing everything I have worked for as I near retirement age. I honestly only moved to the scheme to reduce my admin overheads as I do not have a great understanding of the tax intricacies. I have a 6 year old son who is dependent on me.

11. I struggle to work out HMRCs logic in forcing 1000s of contract workers into bankruptcy who will then be unable to continue to find work and will become a strain on the system claiming benefit instead of contributing to the economy.

12. It has been highly publicised recently following the ‘Panama Papers’ of the way other people particularly celebrities have used tax avoidance, which is not illegal. I do not hear any stories regarding these people being penalised and chased for funds going back 20 years. It seems particularly cruel to single out the contract market where the earnings of contractors and freelancers in the IT, medical and other professions is not great so this sector or unable to afford legal counsel to defend their position.

13. To me it seems wring that HMRC are allowed to change rules and the default position is that the people impacted then have to prove their innocence. This seems at odds with the foundations of the British Justice system of innocent until proven guilty. If HMRC cannot tell me how much I owe 5 months after asking to me it really does not feel like they know whether I am guilty of anything or not.

14. Suggested Amendment - I suggest that the 2019 Charge is removed from the Finance Bill. The scheme was a legal form of tax avoidance when I joined the scheme and is still legal today. HMRC should not be able to retrospectively change the law. HMRC have achieved their objective in scaring the majority of people away from these schemes. They need to make sure that the tax laws governing contract workers are clear going forward and they stop any further companies offering these schemes if they want to make them illegal.

Additionally in the Rangers FC case ( which HMRC won the Supreme Court found that the liability for the tax was with the employers i.e. in my case the company that ran the schemes and not the employee i.e. myself.

I am willing to come to a reasonable settlement with HMRC despite not legally being in the wrong but HMRC seem to want to crush contract and freelance workers to maximise their revenues.

January 2018


Prepared 16th January 2018