HMRC must take tough action against loan scheme promoters, says House of Lords committee

HMRC must place a priority on taking tough action against a “hard core” of tax avoidance scheme promoters who are targeting workers returning to the NHS to fight the pandemic, according to members of the House of Lords.

The Lords’ economics affairs committee said it was “troubled” that people on lower incomes are becoming caught up in loan schemes,

The Lords’ economics affairs committee said it was “troubled” that people on lower incomes are becoming caught up in loan schemes, while the people behind the schemes remain unpunished.

The report- which carries the title: “New powers for HMRC: fair and proportionate?” states: “Although the loan charge is outside the scope of this inquiry, the evidence we received in 2018 suggested that HMRC has spent considerable time and resources focusing on individuals who participated in disguised remuneration schemes, while some of those who promoted such schemes have continued to be able to profit from their activities.

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“We question whether HMRC has struck the right balance between focusing on individuals who used these schemes and the promoters of such schemes. HMRC must prioritise taking effective action against promoters.”

The committee accepts that HMRC has faced some significant challenges in applying the existing rules, given the steps taken by promoters to frustrate their efforts.

But the report added: “We are, however, concerned that it is only now that HMRC is proposing changes we are told are needed to ensure existing rules apply effectively. Nevertheless, we welcome the action being taken by HMRC to rethink its approach to promoters in light of its experience.”

The report added: “The evidence received in our 2018 inquiry concerning the loan charge showed how individuals can become involved in disguised remuneration schemes without being aware of their true nature—and the harm and distress, both financial and emotional, that then results where the scheme is challenged.

“We are troubled that these types of scheme continue to proliferate, and that many of those people unwittingly caught in these schemes are on lower incomes.

“The continued sale and marketing of disguised remuneration schemes, most recently to returning NHS workers earlier this year, shows the need for the Government to act more effectively, using the full range of measures at its disposal, if it is to be able to close these schemes down.“

“We are disappointed that, notwithstanding the various powers HMRC has accumulated in recent years, a number of promoters—the so-called ‘hard core’—remain in business, despite HMRC knowing who these promoters are. “

Action against this remaining core of promoters must be a priority, the report states.

“Where possible, HMRC should pursue criminal action against promoters, including against those who have sold schemes in the past to which the loan charge applied. This could be a valuable deterrent, and we recommend that more publicity is given to these cases.”

The report added: “Taxpayers need to have better information about schemes so that they can see through a promoter’s sales pitch and recognise when they are being sold an aggressive tax avoidance scheme.

“A page on a website telling taxpayers how to identify a tax avoidance scheme is insufficient.”

HMRC published its strategy for tackling promoters of tax avoidance schemes in March last year.

The strategy sets out HMRC’s work to date and outlines how HMRC will continue to take "robust actions" against promoters of tax avoidance.

A spokesman added: “We recently published further proposals in the L-Day package which are designed to enable us to take action more quickly to stop promoters selling schemes which are unlikely to produce the benefits that they promise. There will be a consultation on these proposals, launching in the Spring.

"HMRC has been working for around five years, since the introduction of new legislation, to change the behaviour of promoters.

“Despite significant activity resulting in some promoters leaving the market, a few, hard core promoters remain. We are increasingly focusing our resource on those.”