Many contractors are being unfairly treated by the APN regime, writes Graham Webber.
The excellent article by Graham Aaronson QC and Steve Bousher (‘Tackling avoidance: the coalition’s end of term report’, Tax Journal, 1 May 2015) proves how the battle won for the hearts and minds of public opinion was converted into tough anti-avoidance measures with little or no adverse comment. I would generally agree with their marking of the coalition’s efforts, including the black mark.
The ground over which the hearts and minds campaign was staged was the activities of multinational companies and the high net worth community. Their indulging in avoidance projects (some still sub judice) is used as the raison d’etre for the measures. HMRC is painted as valiantly holding the breach against the well resourced, would be pillagers, of Treasury coffers.
There is, though, a larger group of people that are caught in the blast radius of these new rules (and possibly a larger amount of tax) – and I’m left wondering if the high scoring end of term report might need revising when these are considered as a valid part of the equation.
HMRC wants to treat contractors as employees. Neither individuals in this area, nor their customers wish them to be employees. It is unsurprising then that preserving the flexibility of contractors to work for the best day rate and for those engaging them to squeeze costs has attracted a lot of attention from providers of ‘solutions’. These started as relatively simple ways to preserve self-employment status with its favourable treatment of expenses. They morphed into administrative umbrellas for one man limited companies. With the advent of arrangements including employment benefit trust and offshore intermediary employers, the providers evolved their offerings to reduce the largest overhead – tax.
HMRC began enquiries around 2004. From that date, a seemingly random selection of users began to receive COP 8 notices, s 9A enquiry letters or, sometimes, ‘discovery’ assessments. Next came a long silence. Very long. In fact, years of silence.
The providers of the arrangements advised their clients that this was part of a normal process. Their schemes were ‘100% HMRC compliant’, backed by a QC opinion and, in one case my firm has seen, was said to be immune from enquiry because it had been disclosed under DOTAS!
Cases began to appear. In 2013, nine years from the first COP 8s, HMRC won the Boyle case [2013] UKFTT 723 (TC). This case concerned a scheme that involved offshore companies and loans in soft currencies in a carefully orchestrated manner. This was thought to be a forerunner of more success and Spotlight proclaimed that such cases were considered avoidance. It is hard to see why not.
Subsequent cases (UBS and Deutsche Bank [2014] EWCA Civ 452, Murray Group [2014] UKUT 0292 (TCC)) were setbacks. These remain sub judice, and the jury is literally still out on whether HMRC’s view is correct for contractor EBT arrangements.
In all this period of time, individual contractors heard nothing from HMRC. Many assumed that the lack of follow-up meant that enquiries were dropped. This was tacitly encouraged by scheme providers who had not closed up shop (only to phoenix elsewhere).
Then the accelerated payment notices (APNs) arrived. These are landing on people who have heard nothing since the COP 8, which was ten or more years ago. As can be imagined, this came as a very nasty shock. I have many stories of contractors being pushed into bankruptcy and I do fear that some will suffer health problems.
Many tens of thousands of contractors used these schemes, often unwittingly, and were largely ignored by HMRC after initial contact. They are now being judged by new principles on anti-avoidance. They are subjected to the retrospective effect of the APN regime. They face some exceedingly hard choices, with no recognition being given or allowance made for the dilatory behaviour of HMRC, which has undoubtedly increased interest liabilities.
What might be considered an appropriate response for a few tens of multinational companies and a few thousand high net worth individuals, is causing collateral damage to tens of thousands of people.
Perhaps a greater focus on HMRC resources to close out existing enquiries and less on headline grabbing new measures would have prevented this situation?
My end of term report would have said, well done in chasing the rich, but you must do better for everybody else.
Home >Articles > Reader feedback: Tackling avoidance
Reader feedback: Tackling avoidance
Many contractors are being unfairly treated by the APN regime, writes Graham Webber.
The excellent article by Graham Aaronson QC and Steve Bousher (‘Tackling avoidance: the coalition’s end of term report’, Tax Journal, 1 May 2015) proves how the battle won for the hearts and minds of public opinion was converted into tough anti-avoidance measures with little or no adverse comment. I would generally agree with their marking of the coalition’s efforts, including the black mark.
The ground over which the hearts and minds campaign was staged was the activities of multinational companies and the high net worth community. Their indulging in avoidance projects (some still sub judice) is used as the raison d’etre for the measures. HMRC is painted as valiantly holding the breach against the well resourced, would be pillagers, of Treasury coffers.
There is, though, a larger group of people that are caught in the blast radius of these new rules (and possibly a larger amount of tax) – and I’m left wondering if the high scoring end of term report might need revising when these are considered as a valid part of the equation.
HMRC wants to treat contractors as employees. Neither individuals in this area, nor their customers wish them to be employees. It is unsurprising then that preserving the flexibility of contractors to work for the best day rate and for those engaging them to squeeze costs has attracted a lot of attention from providers of ‘solutions’. These started as relatively simple ways to preserve self-employment status with its favourable treatment of expenses. They morphed into administrative umbrellas for one man limited companies. With the advent of arrangements including employment benefit trust and offshore intermediary employers, the providers evolved their offerings to reduce the largest overhead – tax.
HMRC began enquiries around 2004. From that date, a seemingly random selection of users began to receive COP 8 notices, s 9A enquiry letters or, sometimes, ‘discovery’ assessments. Next came a long silence. Very long. In fact, years of silence.
The providers of the arrangements advised their clients that this was part of a normal process. Their schemes were ‘100% HMRC compliant’, backed by a QC opinion and, in one case my firm has seen, was said to be immune from enquiry because it had been disclosed under DOTAS!
Cases began to appear. In 2013, nine years from the first COP 8s, HMRC won the Boyle case [2013] UKFTT 723 (TC). This case concerned a scheme that involved offshore companies and loans in soft currencies in a carefully orchestrated manner. This was thought to be a forerunner of more success and Spotlight proclaimed that such cases were considered avoidance. It is hard to see why not.
Subsequent cases (UBS and Deutsche Bank [2014] EWCA Civ 452, Murray Group [2014] UKUT 0292 (TCC)) were setbacks. These remain sub judice, and the jury is literally still out on whether HMRC’s view is correct for contractor EBT arrangements.
In all this period of time, individual contractors heard nothing from HMRC. Many assumed that the lack of follow-up meant that enquiries were dropped. This was tacitly encouraged by scheme providers who had not closed up shop (only to phoenix elsewhere).
Then the accelerated payment notices (APNs) arrived. These are landing on people who have heard nothing since the COP 8, which was ten or more years ago. As can be imagined, this came as a very nasty shock. I have many stories of contractors being pushed into bankruptcy and I do fear that some will suffer health problems.
Many tens of thousands of contractors used these schemes, often unwittingly, and were largely ignored by HMRC after initial contact. They are now being judged by new principles on anti-avoidance. They are subjected to the retrospective effect of the APN regime. They face some exceedingly hard choices, with no recognition being given or allowance made for the dilatory behaviour of HMRC, which has undoubtedly increased interest liabilities.
What might be considered an appropriate response for a few tens of multinational companies and a few thousand high net worth individuals, is causing collateral damage to tens of thousands of people.
Perhaps a greater focus on HMRC resources to close out existing enquiries and less on headline grabbing new measures would have prevented this situation?
My end of term report would have said, well done in chasing the rich, but you must do better for everybody else.
