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HMRC must be held accountable for umbrella compliance failures

Crawford Temple is CEO of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance. He claims HMRC must be held accountable for umbrella compliance failures

The head of HMRC, Jim Harra, is set to face tough questioning from the Public Accounts Committee next month over the lack of progress on tackling tax avoidance and fraud that is costing the UK economy millions each year. Despite numerous measures implemented to combat tax avoidance, these efforts are clearly falling short. Harra himself has boasted of prosecuting or convicting around 20 promoters of tax avoidance schemes in recent years - a shockingly low number that shows these criminal enterprises are still thriving.

This is especially true in the umbrella company sector that has ballooned since IR35 reforms forced contractors to work through intermediaries. Many so-called umbrella firms are no more than fronts for tax avoidance, tricking contractors into signing up then disappearing without paying taxes. Yet HMRC continues to pursue individual contractors acting in good faith while letting the real criminals behind these schemes off the hook. This flawed, unjust approach must end.

HMRC already has extensive data on contractor payments through Real Time Information (RTI) and Intermediary Reporting that came into effect in 2013 and 2015. These requirements provide HMRC with comprehensive data on payments to contractors that should make identifying tax avoidance schemes straightforward. Yet it appears this data is not being effectively utilised to proactively pinpoint anomalies that would flag illegal behaviour.

The Public Accounts Committee must challenge HMRC on why this data is not being exploited more effectively. HMRC urgently needs to prioritise developing monitoring tools that cross-check datasets like RTI and Intermediary Reporting. HMRC should be working more closely with the recognised compliance bodies to raise standards and by working together and tapping into the data only then will we be assured of stamping out non-compliance and limiting the access to market for criminals to do business.

Enforcement also needs to be ramped up. HMRC has a broad range of measures that it can use to identify the criminals but they are not working effectively. HMRC’s naming and shaming campaign sees perpetrators disappear from the list after 12 months only to open for business under a new name and seeking to lengthen conviction times for criminals is simply a case of shutting the stable door after the horse has bolted. Once schemes are identified HMRC could close them quickly by applying significant penalties which could become personalised liabilities for those running schemes.

With tax avoidance on the rise, HMRC can no longer drag its heels on compliance. HMRC is failing in its fundamental duty to collect taxes owed and is creating an uneven playing field that punishes compliant businesses and contractors.

The Public Accounts Committee must demand answers from HMRC on improving payment intermediary compliance. HMRC already has the information needed to drastically curb tax avoidance. Until HMRC takes robust action, billions in unpaid taxes will continue leaking from the UK economy each year. The time for excuses is over.

Published: Wednesday, 25 October 2023

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