In HM Revenue and Custom's pursuit of tax avoidance, the government has recently given HMRC the power to demand tax back from contractors, which they must pay within 90 days regardless of whether the individual disputes the debt. The new rule means that a contractor has to pay now and get the tax back if they win at a tribunal or court and that's assuming that the contractor can afford to go to court.
The Telegraph reported recently that "One freelance worker targeted by HMRC has been ordered to pay £27,900 in back-taxes relating to a job he held in 2008. In 2010 he received a letter from HMRC advising him that it was looking into his tax affairs and in April 2015 was advised of the outstanding balance. HMRC's brief notification in 2010 was enough to open an "inquiry" meaning that it can sidestep any statute of limitations with regard to demanding payment."
There is no doubt that some contractors have, in the past, used offshore schemes to reduce tax. They were often introduced to those schemes by other contractors who did the same job but were taking home more money. It will not be a surprise to those who used offshore schemes if they get a letter through the door. However HMRC is looking to schemes that operated in the dim and distant past and contractors may have thought that they had got away with it.
Although this is no doubt worrying for some contractors it is likely that those using offshore schemes knew that there was a risk involved. More worrying is the fact that HMRC has a wide power to go after "schemes" and demand accelerated payment before a contractor has had chance to prove that he is innocent or that the scheme is legitimate.
No doubt HMRC will maintain that it would not use these powers save in very specific circumstances but the fact is that such powers are open to abuse. Jennie Granger, Director of Enforcement at HMRC, commented: "Tax avoiders are running out of options. People now have to pay upfront and dispute later."
On that note a consultation has just finished on whether to allow contractors to continue to claim Travel and Subsistence expenses. The results have yet to be published. The headline from HMRC is that it is interested in promoting fairness and preventing abuse. The reality is that HMRC is interested in making it easier to collect tax from contractors.