HMRC, Get Our Tax Back
Her Majesty’s Revenue and Customs made headlines recently for its decision to crack down on “contractor loan schemes”, with many claiming that the government body is victimising easy targets. Last month it received national attention for the memo sent to the Cabinet office warning of awarding honours to individuals embroiled in controversial tax schemes. It seems that HMRC does well to make examples out of people, but, how much tax money is actually being retrieved? And how much more well-off could our public services be if we had the money?
The most recent reaction from HMRC, the loan charge to be enacted in 2019, on tax avoidance schemes centres on self-employed contractors who would pay their wages into a third party company and receive them back as ‘loans’. The scheme saved them thousands of pounds as they would pay a five or ten percent fee to the scheme facilitators instead of tax and national insurance contributions upwards of thirty percent. For this, the decision by the governing body to make the people who partook in these schemes pay their tax back since 1999, in one go, should be supported since these people benefitted at the cost of all British citizens. However, the caveat, that some of the people that would potentially be pushed into crippling debt or bankrupt are public sector workers who, in good faith, accepted the schemes as conditions of their employment from agencies, is one which sits uncomfortably amongst fiery demand for money to be funnelled back into the public purse.
While the total amount of tax that would be collected retroactively is undoubtedly significant, the enforcement of laws such as the loan charge should be carried out with nuance in a way that does not punish people such as nurses and social workers who were involved unknowingly. Moreover, an action that would have a greater magnitude would be working to close the legal loophole that has been widely exploited for decades, as opposed to wasting public funds chasing tax avoidance schemes as they crop up.
The official figure of tax that remains uncollected, the ‘tax gap’, is an average of £33bn per annum, over the last eleven years. Since the government would hardly want to showcase its own failings, there can be some doubt cast over whether this is the full figure, but for argument’s sake let us assume that they have been transparent in this case. In any economy, £33bn is a large amount but considering the austerity measures that the public has been violated with over the last decade, it holds even greater value. That amount of money lining the folds of the Exchequer could either finance the delivering of 4-8 million babies, including antenatal and postnatal care; reverse the five major cuts listed here (amounting to £5.8bn) five and a half times over; end homelessness by 2028 or recruit and train 10,000 police officers over the next four years and have £32.2bn left over.
It’s safe to say that British citizens as a whole, especially the most disadvantaged members of society, would be much better off in the case that the tax gap did not exist. This was obvious. But what isn’t obvious and doesn’t make economic sense is the fact that HMRC’s workforce has been slashed in half. While scrimping on the cost of salaries and training, which may save a few hundred thousand each year, HMRC allows billions to remain in the pockets of people who are ultimately thieves - keeping money that they had a responsibility to contribute to society. Moreover, as usual the richest benefit from this cut since they can pay for imaginative tax consultants to run laps around the law, and at most pay a fine - which they can afford - while the poorest people who either avoided tax out of necessity or were overpaid in working tax credit must find a pot of gold worth tens of thousands or face jail.
HMRC has a responsibility towards the people it serves to start making better choices. Punishing people indiscriminately is not the way forward. However, ensuring that it has an adequate, efficient and creative workforce as opposed to making cuts as a facade is a top priority. That, alongside actively working to change the laws that have allowed some people to believe they deserve their money more than others and neglect their social duty. HMRC, get our tax back.