Contractors who are using or have used tax avoidance schemes in the past are now to be judged guilty well before their case ever reaches the tax tribunals and courts, if it ever does. That’s the only conclusion that can be drawn from the High Court decision confirming that HMRC’s most draconian of powers, Accelerated Payment Notices (APNs), are legal.
When used alongside the Direct Recovery of Debts legislation, which allows the taxman to simply take unpaid tax from a contractor’s bank account without going through the courts, we are entering a very scary world where the rule of law as we’ve always understand it seemingly does not apply to HMRC.
Let’s remember, tax avoidance is legal and should not be confused with tax evasion, which is illegal and rightly so. And whatever the prevailing view on the morality of using highly aggressive tax avoidance schemes, the fact remains that they are legal until HMRC goes through due process to prove that they are not.
That’s why what is being done to tax avoiding contractors by APNs is monstrously unfair. As part of its justification for being granted and using this power to demand tax up front, HMRC maintains that it wins 80% of the tax avoidance cases it pursues. This is true, but what HMRC does not add is that it only pursues cases it is likely to win anyway.
So, the likelihood is that many of those contractors served with an APN will find that their avoidance scheme is robust and defeats any attempt by HMRC to challenge it. Only they will only find out long after being parted with large sums of cash to settle their APN.
For many, this will result in selling their family homes and even becoming bankrupt, as APNs must be paid within 90 days and there is no appeal.
And although HMRC will eventually work through every tax avoidance scheme that it has issued APNs for, that could take decades. Furthermore, having paid out all their savings and then some, those affected won’t have any money to fund legal action to accelerate the process and defend themselves. Will the corporate tax avoiders that spend so much time in the media spotlight and being challenged by the Public Accounts Committee receive APNs? Hardly.
Tackling aggressive tax avoidance is a worthy aim. But not in this way – the process is simply wrong for a nation that is held in the highest regard internationally for the fairness of its legal system. HMRC now has the power to demand tax from someone before proving them guilty, and it can take this money directly from a contractor’s bank account without going through the courts.
Conservative peer Lord Flight writing for the website Conservative Home most succinctly sums-up the shocking injustice of the High Court ruling and the powers that HMRC now wields:
“It is inevitable that this power will be both misused and used wrongly. Like citizens, the Government should rely on the ultimate power of the courts to recover monies owing. This is the sort of totalitarian measure we do not want or need in this country and, historically, have fought against.”