HMRC should be reviewed and unworkable tax laws that target contractors should be dealt with. Ten years after Her Majesty’s Revenue and Customs’ formation from the then Inland Revenue and HM Customs, the taxman has been awarded increasingly draconian powers, yet delivers a poor service and has little accountability.
The Labour Party committed to review HMRC if it came to power following May 2015’s General Election. That clearly is not going to happen. The most recent call for a review is by accountant Paul Aplin, who is chairman of the Institute of Chartered Accountants in England and Wales (ICAEW) Tax Faculty Technical Committee.
Writing for the institute’s magazine, Economia, Aplin highlights that what HMRC has become in the last 10 years is not what its original architects envisioned when they undertook to merge two huge departments. The rate at which HMRC has been stripped of resources has almost equalled the rate at which it has been awarded new powers.
If you put the timing of HMRC’s formation into a contracting context and look at the number of IR35 cases, summarised in Appendix 1 of our most recent whitepaper IR35 after 15 Years, there is an interesting if crude correlation. It is after 2004-2005 when HMRC was created that the number of IR35 enquires tails off, from a peak of 1166 in 2003-2004 to 771 the next year. In fact, only a few years later in 2006-2007 it was as if they fell off a cliff, falling to 158, a fraction of what they were.
IR35 is a fiendishly complex piece of legislation that virtually all tax experts agree should never have made it to the statute book. Did the newly merged HMRC tacitly agree, or at least those responsible for compliance, that IR35 requires disproportionate resources to enforce that were in increasingly short supply, and let it fall by the wayside?
This is why we desperately need a root and branch review of HMRC that examines what legislation the taxman needs and actually uses, and what can be stripped out. The review should also identify what resources are needed to properly enforce the powers that remain.
Disguised employment is an issue that should be tackled, as it brings genuine contractors into disrepute. HMRC’s status inspectors may not be the contractor’s friend, but if adequately resourced and allowed to do their jobs properly, they’d probably find the vast majority of contractors are not disguised employees.
Rid HMRC of the requirement to enforce poor and unworkable legislation by repealing it and free-up HMRC’s highly skilled staff to help taxpayers to pay the amount of tax they are required to by the law.
A review is not only well overdue, but could actually generate a greater yield for the Exchequer as well as enabling contractors to get on and do what they do best – enabling economic growth and innovation - rather than worrying about the taxman calling.