HMRC branded 'immoral' for targeting contractors

Stephen Lloyd, Liberal Democrat MP for Eastbourne, has dubbed a HM Revenue & Customs crackdown on some contractor tax schemes "immoral".

Mr Lloyd called on the tax office not to apply charges to those who cannot pay back what they owe after the schemes were found to be illegal.

The arrangements, which used loans and offshore trusts, were accepted as legal in the early 2000s.

Mr Lloyd said that it was immoral for the taxman to go after the people affected, many of whom face six-figure tax bills as well as loan charges on any loans outstanding in April next year.

Instead, he said the taxman should go after the people who promoted the schemes.

The schemes usually involved a contractor's wages being paid to an offshore trust which then loaned the money to the worker.

In theory, the loan will be repaid, so no tax should be due, but in reality the debt will simply roll over indefinitely.

They were heavily promoted, sometimes by big-name accountancy firms and lawyers, and were used by contractors including doctors and nurses.

An HMRC spokesman said those who had been involved in the schemes should be aware that a new tax charge takes effect in April 2019.

The HMRC spokesman said: "People need to settle their disputes, repay the loans, or face the charge.

"Anyone who anticipates problems paying their tax bill should contact us, as we may be able to offer extra time to pay based on individual circumstances. HMRC has an outstanding record for supporting those facing genuine financial difficulty.

"These schemes are tax avoidance and simply do not work. Don't be seduced. If it sounds too good to be true, that is because it is. HMRC will challenge them and you will be much worse off in the long run."

He added that HMRC would fine the promoters of illegal schemes as well.

The spokesman said: "We are cracking down hard on the promoters of avoidance schemes. We charge penalties of up to £1m where unscrupulous promoters misinform or mislead their clients and have powers to recover 100 per cent of the fees earned by anyone enabling tax avoidance."

Tax lawyer Miles Dean, partner at Milestone International Tax, said that the schemes and their promotion were of particular concern.

He said: "The proliferation of umbrella company structures, often involving employee benefit trusts (EBTs), loan arrangements and share option arrangements, is of significant concern.

"Even more so when such arrangements are marketed to uninformed individuals on the back of a QC opinion.