HMRC using new powers to chase tax debts

Posted by Amy Flower in Personal Finance on 23 September 2015 - Amy is a Senior Credit Analyst at checkmyfile

Historically, HMRC were made to chase outstanding tax debts through the courts, incurring high costs and leading the way for the new legislation which was approved in April 2014.

The new ruling has targeted business millionaires and premier league football players who have demonstrated that they have used ‘aggressive tax avoidance’ schemes and are now facing large demands, up to £10m. The new demand system is enforcing that bills are paid within 90 days and the clients can dispute the balance later, which is yet to illustrate if this new system is working effectively or ultimately costing more money and time through the disputes process.

Recent case studies are indicating that the new ruling is not 100% focussed on the target groups that it was written for, instead it is hitting moderately wealthy individuals who are being served demands to repay tax that is owing from employment years ago and not from tax avoidance schemes. This type of tax demand has always been available and did not need additional legislation to target this group of tax debtors.

A spokesman for HMRC has stated that anyone who has received a demand and is struggling to obtain the funds to clear the debt should get in touch with the HMRC as soon as possible, with the view to set up a suitable repayment plan - ignoring the demand will not make the issue go away.

Income tax can usually only be investigated up to 4 years ago but can go back 6 years if they can prove the individual was ‘careless’ or up to 20 years if it can be proven there was deliberate avoidance. Once an inquiry is made by HMRC this allows them to side step the rules, Section 39, that outline the time limits for demanding back taxes.

Freelancers working the late 2000s in the oil and gas, computing and banking sectors are currently under scrutiny and are being informed by the HMRC that their tax affairs may be classed as ‘aggressive tax avoidance’. Up to 64,000 demands are currently being made to the freelancers, who are being told that they need to pay up to a year’s salary, c£60,000 – £80,000, in 90 days. It can then take months for investigations and disputes to be concluded, with no real answer if there is to be fines or interest added to the amount or if the dispute will be successful.

Another issue with the demands is the calculations themselves being slammed by external accountants, who have reported that some demands have been inflated by up to 25% and are not within the guidelines of the target groups outlined by the new legislation. The amounts of money being demanded is sometimes being made on people who cannot afford it and there is now uncertainty about the figures and how they have been calculated.

There are schemes that were historically advised to freelancers who are no considered to be aggressive and in the HMRC’s sight along with DOTAs filed in individuals tax returns. The latter could be more fruitful for the government and aimed more appropriately at the business millionaires group, rather than the individuals currently finding an accelerated demands on their doormat.

To date, an estimated £28m has been refunded to taxpayers who made the payments in line with their demand and have since either been informed that there was a miscalculation or that the amount was not actually outstanding.

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