House of Lords report criticises HMRC’s treatment of taxpayers

A new House of Lords report published this week argues that HM Revenue & Customs (HMRC) is treating taxpayers ‘unfairly’.

The report, which was published by the Lords Economic Affairs Committee on Tuesday, claims that the tax authority has been granted a number of “disproportionate” powers, particularly with regards to tackling tax avoidance and evasion.

It warns that many such powers are undermining the rule of law and justice, as well as discouraging taxpayers from appealing against HMRC decisions.

Specifically, the report criticises HMRC’s controversial ‘loan charge’, a recently-introduced fee phased in by the tax authority to combat so-called disguised remuneration schemes – historic schemes which have seen workers paid by way of a loan not liable for tax and National Insurance (NI) contributions.

The Committee has said that it has seen “disturbing evidence” that the powers granted to HMRC with regards to the loan charge – which enable the Revenue to apply the charge retrospectively even in instances where taxpayers are unaware that they have breached tax rules – are unfair to unrepresented and lower income workers.

Lord Forsyth of Drumlean, Chairman of the Committee, said that HMRC was “right to tackle tax evasion and aggressive tax avoidance.”

However, he added that “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,” he said.

Lord Forsyth added that HMRC had been granted a number of disproportionate powers “since 2012,” many of which constitute “a tax on justice.”

“We need to work together to build new principles for the tax system, taking a tough approach to tax avoidance while treating taxpayers fairly,” he said.

“We recommend a new review of HMRC powers, and an independent review to consider new oversight arrangements for HMRC.”