HMRC ‘fake news’ undermines tax collection

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.