HMRC ‘fake news’ undermines tax collection

HMRC enters media hall of mirrors?
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Dave Chaplin
Columnist
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In a world of fake news and echo chambers, it is increasingly difficult to know which organisations are trustworthy. When it too  enters this media hall of mirrors, HMRC puts its ability to collect tax at risk, writes ContractorCalculator.co.uk's Dave Chaplin.

Of all organisations, Her Majesty’s Revenue and Customs (HMRC) depends on trust, a care element within a tax system that relies on voluntary compliance for successful collection. Yet, for many contractors, HMRC has lost its integrity and joined the ranks of those who spread mistruths.

By damaging its own reputation, HMRC is paving the way to losing its ability to raise taxes whilst dealing a further blow to the United Kingdom, a country that looks increasingly broken and divided.

The mistruths generated by HMRC perpetuate misperceptions and ignorance about the differences between contractors and those with permanent employment in both the public and private sectors. In its efforts to reform IR35, HMRC makes a flawed, yet credible sounding proposition that two people doing the same job should pay the same tax – which isn’t what the tax laws actually say.

The tax department also fails to acknowledge the differences in employee rights and benefits that contractors do not share with their PAYE colleagues. Recently disclosed evidence suggests that HMRC is wilfully ignoring the facts: its latest research commissioned to assess the effects of IR35 reforms made no attempt to obtain feedback from contractors and other external stakeholders.

As more people move to self-employment, it is understandable that HMRC seeks to make up for lost employer National Insurance Contributions – this is the 13.8% payroll tax paid by firms that hire employees and pay them salaries, but it is not paid by the self-employed.

Instead of reviewing its tax system HMRC has heavy handedly intervened on employment practices. Its strategy has deterred employers from using freelance contractors and even created a false employment status, forcing compliant tax-paying contractors to pay more tax than they should be paying.

Flexible workers in the health service and other public sectors have effectively incurred a 20% cut in pay and the reforms are increasingly affecting the private sector, with some contractors now working fewer hours or leaving the public sector altogether.

HMRC’s stance has already had a severe impact on the NHS, further stretching its limited resources and limiting the scope, volume and quality of healthcare it can provide. The nation’s workforce can only be weakened by a weakened level of health care.

A poorly paid and under-employed workforce is also less likely to generate tax revenue. It is ironic that in its attempts to raise more tax, HMRC is threatening a major source of that revenue.

If that were not worrying enough, there is a growing evidence of schemes being developed to help contractors remain in work by avoiding and possibly evading tax.

When the nation’s tax agency fails to raise tax from those who owe tax and while attempting to increase the amount raised from those who are already paying their fair share, its integrity is lost and the fundamental principle of voluntary compliance by taxpayers is severely compromised.

In 2012, Dave Hartnett, then Permanent Secretary for Tax at HMRC said: “Integrity lies at the heart of the system.” Sorry HMRC, but flexible workers no longer believe you act fairly, honestly and decently, and the undermining of your integrity is something you need to take very seriously for all of the UK’s population, and not just contractors.

About Dave Chaplin

Dave Chaplin

Dave Chaplin is a former IT contractor in the City of London, and is founder and CEO of ContractorCalculator, and author of the Contractors' Handbook and Beat IR35: The ultimate guide to IR35 for contractors, agencies and clients.

Started in 1999, ContractorCalculator.co.uk is the leading independent website for the UK contracting industry – most of whom are highly skilled knowledge workers.

Dave Chaplin has lived and breathed contracting since he first took the plunge and became ‘one of the chosen’ in 1997. He spent seven years working as an IT contractor in the City of London on critical, cutting-edge IT infrastructure and development projects for global players like HSBC, Merrill Lynch, Cable and Wireless, and many others.

 
 

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By kaff
04th Jan 2018 19:58

'One of the chosen'? -surely that must make up for any minor inconveniences created by the government's stance on the taxation of earned income.

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04th Jan 2018 22:43

What a Grade A k**b

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05th Jan 2018 09:00

Takes one to know one!

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to Trethi Teg
05th Jan 2018 20:03

I'm guessing your comment is at least partly driven by our falling out on the DR thread?

Speaking of which, are you still shouting the odds over the unfairness of it all?

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07th Jan 2018 12:50

The quality of articles has really dropped off on this site over the past year or so. It's a real shame and it would be interesting to know how that is reflected in the hits. I certainly come here much less than I used to back before the revamp of the site. It isn't obvious why there has been an editorial decision to follow the current direction of slightly sensationalist, content-lite, and not entirely well-informed articles but it isn't a good one.

I must be getting old.

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By chatman
to Wild Billy
08th Jan 2018 11:03

Good to now HMRC is still keeping an eye on the site.

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08th Jan 2018 11:02

This isn't just HMRC. It is a politically led move by an economically ignorant government. What about the sick pay, holiday entitlements and other benefits that the self-employed have to fund for themselves ?

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08th Jan 2018 13:57

If employed and self-employed NIC was equal, then there would be no (or minimal anyway) IR35 issues. The Government needs to work towards this (it will be a long journey but they need to start it a little faster). ERNIC used to finance reimbursed SSP to Employers (and that has now stopped) and SERPS (and that has now stopped). So ERNIC is now a Tax on Employment (not good).

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to Chris Pittock
11th Jan 2018 15:01

Employers NI is the £60bn problem which is a payroll tax, nothing else. It needs to go. The sensible option is to slowly phase it out whilst increasing the other tax rates.

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