Powers given to HMRC to crack down on tax avoidance risk undermining the rule of law and access to justice, a House of Lords report has concluded.
The House of Lords Economic Affairs Committee has called for a review of the UK tax authority’s powers, which have gradually grown over recent years.
Lord Forsyth, the committee’s chair, said the government’s approach to tax controls was “devastating the lives of middle and lower income individuals” who had used disguised remuneration schemes – “in many cases being required to do so by their employers”.
Such schemes, which usually involve using a loan or other third-party payment to avoid income tax and National Insurance contributions, will be subject to a new loan charge from April next year.
“HMRC is right to tackle tax evasion and aggressive tax avoidance,” said Forsyth. “However, a careful balance must be struck between clamping down and treating taxpayers fairly. Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect.”
The committee said two sections on tax avoidance from the government’s finance bill, which was unveiled last month, would “introduce disproportionate power”.
The sections referred to would extend the time limits for assessing offshore tax arrangements to 12 years, which the committee said would “place an unreasonable burden” on taxpayers, most of whom do not use offshore arrangements, and who who would be forced to maintain records for longer.
“We need to work together to build new principles for the tax system, taking a tough approach to tax avoidance while treating taxpayers fairly. We recommend a new review of HMRC powers, and an independent review to consider new oversight arrangements for HMRC,” said Forsyth.
A government spokesperson said HMRC uses its powers “responsibly and subject to appropriate checks and balances”, saying that just three per cent of individuals using disguised remuneration schemes work in medical services or teaching, with the majority employed in business services.
“On the loan charge in particular, it is important to bear in mind that disguised remuneration schemes are aggressive tax avoidance structures that allowed some people to avoid the taxes that parliament requires them to pay,” they added.