19/07/18

HMRC plans £3.2bn tax raid on contractors who used offshore avoidance schemes

(TheTelegraph) -- HMRC is lining up a £3.2bn tax raid on tens of thousands of contractors who used offshore tax avoidance schemes.

The taxman estimates that 50,000 people engaged in schemes that allowed them to avoid paying income tax by using a complex structure involving loans from trusts based overseas.

The arrangements were popular in the early 2000s but the high-profile collapse of Scottish football giant Rangers led to them being effectively outlawed in 2010.

Now those who used them, which includes nurses, doctors and teachers, face a charge on any loans that remain outstanding in April next year, unless they have settled their affairs with the Revenue.

The charge could be larger than the overall tax liability, as the outstanding amount over the entire duration of the scheme used will be rolled together and taxed in one year. HMRC says the majority of contractors engaged the arrangements for at least two years.

The latest figures suggest those affected could be facing an average bill of £64,000.

The crackdown has caused anger among those affected, who point out that the arrangements were not illegal at the time and claim they are being taxed “retrospectively”.

Richard Horsley, of the Loan Charge Action Group, said some people will be bankrupted by the charge and claimed he has been contacted by members who have been driven to the brink of suicide over the potential financial impact.

He accused the taxman of attempting to "hoodwink" MPs and "brushing the issue under the carpet".

He said: “Why aren’t they chasing the employers? They hold the Rangers case up as their shining light and that said the employers are culpable for the tax. It’s easy to chase individuals who won’t be able to fight them in the courts for years. We’re low-hanging fruit.”

The group has called on HMRC to set up a 24-hour hotline to support those who are affected.

The taxman has offered an olive branch to the group in the form of a settlement opportunity. Those with taxable income of less than £50,000 in 2018-19 will be given five years to pay the charge. Those with a higher liability may be given more time to pay.

Around 5,000 of the total 50,000 contractors have settled while a further 20,000 have registered an interest in settling, according to the Revenue. The rest must register their interest to settle by September.

Around 65pc of those affected are IT or business consultants, 10pc work in construction and 3pc are nurses, doctors or teachers, HMRC said. Experts dispute these figures.

Tom Wallace, of WTT Consultants, an accountancy firm, welcomed the guaranteed time-to-pay offer but said it did not go far enough.

“We have always pushed for a matrix that says if you were involved for x number of years you will have this long to pay,” he said. “I think the barrier for most people in settling is time to pay and I think people are looking for certainty.

“You have a lot of these people who were using the scheme at the end of their careers and felt they were legitimate. Now they are finding they could face bankruptcy in retirement.”

HMRC also says it has powers to pursue the promoters of these schemes and can issue fines of up to £1m.

More than 70 MPs from all the major political parties have signed up to a motion proposed by Liberal Democrat Stephen Lloyd to exempt all those who used schemes before the goal posts were moved last year with the Finance Bill.