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Tax scandal ruining lives: How thousands of self-employed face losing their homes and livelihoods after innocently using a tax loophole

More than 50,000 contract workers hit with backdated tax demands.

Controversial Loan Charge has been linked to suicides and bankruptcy.

Iain Duncan Smith today calls upon ministers to halt the tax hunt.



Ministers are today urged to end the devastating pursuit of self-employed workers who legally cut their tax bills up to 20 years ago.

More than 50,000 contract workers — including nurses, teachers, and small business owners — have been hit with backdated tax demands for as much as hundreds of thousands of pounds.

The controversial Loan Charge — which aims to claw back unpaid taxes from as far back as 1999 — has been linked to suicides and bankruptcy.

Writing in Money Mail, former Work and Pensions Secretary Iain Duncan Smith today calls on Boris Johnson’s new government to immediately suspend the tax hunt and launch a review.

The former Tory Party leader last week said he was ‘ashamed’ of his government for allowing it to go ahead. HMRC is using the Loan Charge to demand tax they say was avoided using ‘disguised remuneration’ schemes.

These involved paying workers using tax-free loans from offshore trusts that did not need to be paid back. By paying the workers a loan, it meant employers did not need to pay income tax and National Insurance contributions.

The Loan Charge, announced in the 2016 Budget, made any outstanding loans on April 5 this year taxable income. This means freelancers who used the legal loophole face a retrospective tax bill on all their income since 1999 that was paid using the loans.

HMRC expects to claw back £3.2 billion before the repayment deadline of January 31.

But a Treasury sub-committee report last month warned the charge was causing ‘widespread anxiety and distrust’. Campaigners have linked it to five suicides, and more than 150 MPs have joined an All-Party Parliamentary Group to highlight concerns that many will be made bankrupt or have to sell their homes.

Boris Johnson promised to order an independent review at leadership hustings earlier this summer, but months on, HMRC is still demanding the huge sums be repaid.

Terry Brooker, 58, was told to pay £240,000 back tax from his work as an IT contractor for Her Majesty’s Customs and Excise (HMCE) and the Metropolitan Police in the early 2000s.

A freelancing friend had recommended the scheme. Terry says if the taxman had told him not to use the scheme, he would never have agreed to it. He says the umbrella firm — based on the Isle of Man — took around 15 pc of his income in fees. He missed out on pension contributions, holiday and sick pay that employees normally get.

The father-of-two, from Colchester, says: ‘It is absolutely horrendous, it is just so unfair.

‘You cannot expect me to now pay six years’ worth of tax given I believed there was nothing wrong with what I was doing.’

After recovering from breast cancer, a social worker we’ll just call Beverley, decided not to go back full-time and registered as self-employed instead.

She set up a limited company to work as a locum and receive payments from her agency.

But in 2016, she was told by her agency she could no longer use a limited company because of a new law called IR35. She has to use an umbrella company instead.

Weeks later, the mother-of-three says she was contacted by Smart Pay which said it would manage her earnings and she would get to keep at least 90 per cent of her income.

Beverley, 50, from Manchester, says: ‘[The caller] had a very shiny sales pitch. I questioned how it worked but he said there was nothing to worry about; they had been operating the loan payment scheme for years.

‘He said it was perfectly legal and if HMRC queried anything with us, I should tell them to contact Smart Pay.’

Two years later, she received a letter from HMRC telling her she would be investigated.

Beverley, who quit the scheme immediately, says: ‘It came like a bolt out of the blue. I am not a tax expert and I feel naive for following their advice.’

She is still unsure how much she will have to pay, but fears it may be up to £20,000.

She says: ‘We are an everyday working-class family, we don’t have that type of money. I am filled with horror every time a letter arrives.’

Smart Pay did not respond to a request for comment.

Loan Charge Action Group (LCAG) has launched a campaign for a judicial review into the charge.

Tax barrister Keith Gordon, of Temple Tax Chambers in London, says the law could be a breach of human rights. He says many workers had to sign up to the scheme in order to get paid, and were given no indication they were doing anything wrong.

‘A lot of the contractors were not doing it to avoid paying tax, but to do their job,’ he says. ‘And HMRC, by failing to make enough noise, gave the impression it was acceptable.’ Mike Cherry, the Federation of Small Businesses national chairman, has called on the Government to review the charge. He says: ‘Retrospective tax grabs make it impossible to plan for the future. Many who are playing fair with their tax affairs today will be wondering where else the Government might suddenly change the rules.’

An HMRC spokesman says: ‘The Loan Charge is designed to tackle tax avoidance and ensure everyone pays their fair share. It builds on more than two decades of HMRC action to challenge these schemes. The Prime Minister will be setting out more details on the Government’s policy agendas over the next few months.’



The Loan Charge Q&A

The Loan Charge was announced in the 2016 Budget to make sure users of tax avoidance loan schemes pay their share of tax.

Tens of thousands of self-employed workers received their earnings as a loan, instead of income. It meant they avoided paying income tax and national insurance. HMRC says the loans were never intended to be repaid; therefore they count as income and should be taxed.

The Loan Charge applies to all loans, taken out by those such as social worker Beverley, made since April 6, 1999, if they were still outstanding on April 5, 2019, and the tax due had not been settled.

If users gave HMRC all the required information about their loan by April 5, 2019, or had already settled their tax affairs, they would not be subject to the Loan Charge.

Those who settled would be charged income tax on all loans paid to them, less the scheme’s expenses. Tax would be calculated at rates and bands applicable in the year the loan was made.

Users who did not meet the April 5, 2019, deadline have to pay the Loan Charge. It takes the total of all outstanding loans on April 5, 2019, and treats them as income received on that date, or profits arising in the tax year 2018/2019. This means they’re likely to be charged tax at a much higher rate.

Those who have not settled must give details of outstanding loans to HMRC before the January 31, 2020, self-assessment deadline.
Facebook paid just £28m tax after record £1.6 Billion earnings in UK.

Profits on social media app surged by more than 50% to £97m in latest tax year.

https://www.theguardian.com/technology/ ... -in-the-uk

Last month, the online retail giant Amazon came under fire for paying just £14.7m in UK corporation tax last year, despite reporting sales of £2.3bn.

Earlier this month, Netflix UK’s accounts showed that the streaming giant received a €57,000 (£51,000) tax rebate from the UK government last year, despite making an estimated £700m from British subscribers bingeing on fare from The Crown to Stranger Things.

Last year, Google paid £66.8m in UK corporation tax, up from £49.7m, as pretax profits rose from £200m to £246m. Google UK reported £1.4bn in revenues last year, up from £1.2bn. Apple paid £3.8m in tax on £1.2bn in sales last year.
UK government pays millions to firms that use tax havens'

Report from thinktank Demos finds that 24 out of 35 ‘strategic suppliers’ operate in offshore jurisdictions.



Almost three-quarters of companies who have been given major government contracts have operations based in tax havens, according to a new report.

Value Added, published on Sunday by the thinktank Demos, reveals that 25 of the government’s 34 strategic suppliers – organisations that receive £100m or more in revenue from the government – operate in offshore centres.

According to estimates, they account for about a fifth of total central government procurement spend. Of these, 19 had operations in jurisdictions included on the EU’s “blacklist” or “greylist” of countries that are considered to be non-compliant with EU international standards for “good tax behaviour”, according to the report.

The Labour MP and former chair of the public accounts committee, Margaret Hodge, said it was “perverse that the government continues to pay significant sums of taxpayer money to big corporations that practise tax avoidance on an alarming scale”.

There are claims that aggressive use of tax havens can distort competition.

The Labour peer, Lord Haskel, added: “For too long large international tech companies have failed to pay their fair share of tax while being rewarded with government contracts, leaving British companies at a competitive disadvantage.”

The Demos report states: “Large multinational companies, for example, continue to squeeze their tax contributions ever lower: the OECD estimates that US$100–$240bn (£78bn-£186bn) is lost globally in revenue each year from base erosion and profit shifting by multinational companies.”

Procurement is the UK government’s largest expenditure, valued at £284bn. Of the 25 organisations with links to tax havens, 20 benefited from contracts worth a combined £41bn awarded between 2011 and 2017.

“Government procurement could be an incredible force for good in the UK, beyond the public sector and in the economy more broadly,” said Rose Lasko-Skinner, researcher at Demos and co-author of Value Added.

“Public procurement is pretty much the best opportunity the government has to demonstrate what a good British business looks like, and this purchasing power should not be underestimated,” added Lasko-Skinner.

The government has taken steps to improve the way it manages contracts with key suppliers.

The report states that earlier this year, in response to the collapse of public-sector contractor Carillion and to “fundamentally flawed” probation contracts being brought back in-house, the Cabinet Office published the Outsourcing Playbook. Its aim was to improve and strengthen the way government procures, and thereby reduce the risk of similar mishaps in the future.

Demos said that there was a need for new measures – including minimum standards for public procurement to include criteria relating to a bidder’s exchequer contribution.

The thinktank has also called for the National Audit Office to conduct an annual report on central government procurement transparency.

This would include a “league table” ranking of departments, with the bottom three departments compelled to make a statement to parliament.
IFS : UK's richest people exploiting loophole to cut tax rate.

Wealthy professionals use companies and partnerships for lower capital gains tax.



More than 9,000 of the richest people in the UK collected more than £1m each in capital gains last year, exploiting a loophole that could result in them paying tax at a rate as low as 10%.

Economists at the Institute for Fiscal Studies (IFS) thinktank said wealthy professionals often chose to form companies and partnerships to be eligible for lower capital gains tax (CGT) rates rather than collect salaries that would be subject to the top rate of income tax.

HMRC data shows 9,000 people paid just £5.1bn in tax on £33.7bn of capital gains income in the latest financial year available. That works out at an average tax rate of 14.8%, lower than than the basic rate income tax of 20% that people pay on salaries of between £12,501 and £50,000.


Andy Summers, a tax expert and assistant professor at the London School of Economics, said that despite recent changes to tax rules, private equity fund managers were still able to receive most of their remuneration in the form of “carried interest”, taxed as capital gains instead of income. Other highly paid professionals can convert their income into gains by retaining profits inside their companies as they approach retirement.

“Capital gains are highly concentrated at the very top of the income distribution; the vast majority of reported gains go to people who received more in one year than a worker on the median wage would earn in their entire lifetime,” he said at an IFS conference in London on Tuesday titled “Inequality and the very rich: what do we need to know?”

Business owners can qualify for entrepreneurs’ relief, under which they can pay just 10% CGT when they sell all or part of a company. The standard CGT rate is 20%. This compares with the 40% income tax rate on salaries of between £50,001 and £150,000.

People recording gains of more than £1m each accounted for 62% of all capital gains receipts in the 2017-18 financial year, the latest available data set.

Mike Brewer, a professor of economics at the University of Essex and expert on inequality, who chaired the debate, said: “Capital gains are not counted as income when the Office of National Statistics, Department for Work and Pensions and Institute for Fiscal Studies estimate income inequality in the UK. This means that our impression of inequality or top income shares is overlooking 9,000 people all with at least £1m of capital gains, with an average capital gain of £3.7m, and a total capital gain of £34bn.”

Robert Palmer, the executive director of Tax Justice UK, a campaign group lobbying for a fairer tax system, said: “Politicians need to address the low tax lifestyle option open to the wealthy. It can’t be right that a hedge fund manager is able to pay less tax than their cleaner by arranging their tax affairs this way.

“Recent polling we carried out found that the public overwhelmingly agrees income from capital gains should be taxed at least at the same level as income from work, this should be a no brainer for all politicians.”

A Treasury spokesperson said: “We want a tax system where everyone pays their fair share, while also ensuring supporting investment and growth.”

Separately, HM Revenue & Customs announced it was writing to 5,000 people who hold investments in offshore funds to warn that they face 200% tax penalty fines on any gains made if they failed to declare their offshore interests correctly.

“Ensuring the correct UK tax is paid on offshore investment funds can be complex,” a HMRC spokesman said. “This activity is to help people with complex affairs make sure that they have paid the right amount of tax at the right time.”

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