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peas in pods | accountingweb | One state, two bodies, multiple scandals
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Post Office and HMRC: Two peas in a pod?

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To prevent injustices similar to the Post Office and loan charge scandals, reforms are needed to rein in government institutions’ powers. Dave Chaplin believes US laws offer a model to address these problems.

25th Jan 2024
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The Post Office scandal and the recent tax scandals involving the loan charge and IR35 highlight the immense power imbalance between individuals and large government institutions.

During the Parliamentary loan charge debate held on 18 January 2024, Greg Smith MP said: “There does need to be serious action taken on how you can have bodies, in the case of the Horizon scandal, the Post Office, and in the case of the loan charge scandal, HMRC, where a body of the state is autonomous in being judge, jury and executioner at the same time. That is something that we simply have to take away, and there have to be the checks and balances built into HMRC.”

In my view, Smith is right, and this is long overdue. Many of the ministers who spoke drew parallels between the behaviour of the Post Office and HMRC.

In the Post Office scandal, subpostmasters were falsely accused of stealing funds by Post Office’s defective Horizon accounting system, leading to many being wrongly prosecuted and even jailed. Despite their protestations of innocence, Post Office relentlessly pursued subpostmasters through the courts, leveraging their vast financial resources and legal firepower against the individuals.

Many subpostmasters, unable to afford lengthy court battles, pled guilty to crimes they did not commit. The human impact on these individuals and their families was immense – beyond job losses and financial penalties, they faced public shame, wrongful convictions, and even jail time for crimes they had not committed. The consequences were tragic and irreversible for some – families torn apart, reputations destroyed and lives lost to suicide.

Loan charge similarities

Similar themes emerge in the context of HMRC’s behaviour around matters of the loan charge and IR35. HMRC has aggressively pursued individuals in both instances, accusing them of tax underpayments and issuing massive, backdated tax bills running into tens or hundreds of thousands of pounds. 

Like the subpostmasters, these individuals face a David versus Goliath battle against the unlimited resources of HMRC. Many settle out of court to avoid an unaffordable battle, even where HMRC is in the wrong. The human impact is immense – financial stress, mental distress and, in the case of the loan charge, 10 suicides. The evidence shows that the unfettered actions of HMRC can devastate finances and livelihoods.

Judge, jury and executioner

In both instances, state government institutions have abused their power and accused individuals of wrongdoing. Fairness depends on a transparent and accountable administration built on statutory processes and independent oversight. The UK does not have that for HMRC, and what we are witnessing with the loan charge and IR35 is a “bad policing” problem by HMRC, who, like Post Office, have the powers of judge, jury and executioner.

With IR35, HMRC has persistently enforced its rigid legal interpretation, despite losing many tax tribunal cases. And when it loses, HMRC almost always appeals, once again dipping into the infinite taxpayer purse to hire the best legal firepower it can. And if the taxpayer wants to complain, HMRC deals with the complaints and marks its own homework.

No independent oversight

In the Post Office scandal, the government was slow to respond, despite being alerted to flaws in the Horizon system and the flimsiness of prosecutions. With IR35, the government has largely deferred to HMRC’s viewpoint, providing little independent scrutiny. There is a sense of the government protecting its institutions over the rights of individuals. Greater oversight and accountability could have mitigated problems earlier.

While the Post Office scandal led to more severe criminal penalties, both situations demonstrate the unfairness that arises when powerful institutions apply the full force of the law against individuals, with minimal oversight or accountability. To prevent similar injustices in tax matters, there were multiple calls for more independent scrutiny of HMRC at the loan charge Parliamentary debate.

Taxpayers’ Bill of Rights

While government institutions are essential in enforcing laws, they must exercise their powers judiciously, undertake due diligence, and not relentlessly pursue individuals on flimsy or unclear evidence. More oversight is needed to ensure fairness and prevent the excessive harm caused when institutions misuse their power. 

The human impact should be at the forefront to avoid unjustly ruining lives through false accusations or disproportionate enforcement. As the Post Office scandal sadly demonstrated, overzealous institutions can destroy livelihoods and shatter lives if not held accountable. The same concern exists around HMRC’s aggressive pursuit of tax. 

Reforms are needed to rein in their powers and prevent similar injustices from befalling more individuals. There is an easy answer to solve the problem – a ready-made solution.

The US Congress, which confronted similar unfairness problems in the 1990s, led to a Taxpayer Bill of Rights supported by the Taxpayers Rights Code and overseen by a powerful Taxpayer Advocate to ensure legislated procedures were followed. The US laws offer a perfect model for the UK Parliament to adapt, and we urgently need them.

A Taxpayers’ Bill of Rights would provide legislative measures, maximising fair dispute resolution, reducing the pressure on the appellate courts, and lowering collection by intimidation by curtailing abuses of power, focusing on collecting the correct amount of tax.

Replies (12)

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By Justin Bryant
25th Jan 2024 11:14

An excellent and timely article. Glad he agrees re the 2019 LC scandal. See: https://www.accountingweb.co.uk/any-answers/loan-charge-matter-still-rum...

Re the IR35 scandal, see:

https://www.thesun.co.uk/tvandshowbiz/25446901/eamonn-holmes-forced-to-s...
https://www.standard.co.uk/showbiz/eamonn-holmes-sells-belfast-house-hom...
https://www.contractorcalculator.co.uk/hmrc_team_throws_towel_costly_ath...

"Kaye Adams, in her statement to ContractorCalculator, says for her the victory is a pyrrhic one, and expresses her concern for the powers HMRC welds: “They have the power to ruin good, honest hard-working people’s lives with no consequences.”"

Well said!

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By FactChecker
25th Jan 2024 14:45

I was previously barely aware of the U.S. Taxpayer Bill of Rights (or the Taxpayers Rights Code or the Taxpayer Advocate) - why would I be with no dealings over there - but it sounds worth investigating!

The issue here is not specific to IR35 or LC (or any other group) ... it is the unfettered bullying by a body that has lost any corporate sense of purpose (or indeed of morality), and that is subject to no serious independent oversight (particularly of individual cases).
The actual similarities with the Horizon scandal are fairly tenuous, but those underlying faults in the structural foundations generate a very similar tolling of the bells!

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By Rob Swan
26th Jan 2024 12:12

I'm inclined to think there a far more than just two peas in this particular pod!

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By Jdopus
26th Jan 2024 13:58

A big agreement from me. I have a number of social worker clients and they have been endlessly bullied by HMRC on spurious IR35 related grounds for years.

I have one client who has had four HMRC investigations opened into her in the last five years because of incorrect PAYE handling by umbrella companies government councils force her to work under due to HMRC's IR35 rules. When I try pointing out how inherently unfair it is for HMRC to expect someone who's essentially a mid-level employee to constantly deal with complex HMRC investigations into a PAYE process she herself is merely a member of and has no control over I get reviews carried out by HMRC themselves which find that this is a completely reasonable situation. I have repeatedly asked HMRC what my client can possibly do to avoid being subjected to these inspections short of giving up her job and can never get an answer from them, so lo-and-behold she now has to abandon her career of 25 years. Their attitude is that the struggle of complying with HMRC's obtuse employee/worker/IR35 regime is not HMRC's problem.

Every other senior social worker I used to deal with already left the sector years ago because of this HMRC bullying, but of course, no one will ever bother to connect the dots between the behaviour of HMRC and government councils and the departure of the vast majority of top level experienced social workers.

Compared to where we were even five years ago the entire complaint and review process at HMRC is a complete and utter waste of time. They appear to be completely unaccountable to any higher authority and completely uninterested in the damage they do to the lives of taxpayers. Marking their own homework is exactly right.

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Replying to Jdopus:
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By Moo
31st Jan 2024 10:21

'because of incorrect PAYE handling by umbrella companies'
This is the crux of so much of the grief now being caused by IR35. Many umbrella companies operate disguised remuneration schemes paying amounts outside of PAYE under various guises - per diems, bonuses, allowances etc. I even saw a payslip from one umbrella where most of the payment to the contractor was labelled as Dividend - it was an umbrella company, how would it be paying a dividend to a non shareholder??
Often when you ask the contractor why they used that particular umbrella the answer is that they were given a limited choice by their agency. The LITRG report in 2021 and subsequent factsheet for contractors warns of the risks of using these unscrupulous companies (many of which are based offshore).
https://www.litrg.org.uk/sites/default/files/files/LITRG-Factsheet-worki...
HMRC are doing their best to counteract this exploitation of the gullible by publishing a list of known offenders :-
https://www.gov.uk/government/publications/named-tax-avoidance-schemes-p...
And where they see someone on the payroll of a non tax compliant umbrella a warning letter will often be sent to the taxpayer suggesting that they check their arrangements.
Perhaps if tax professionals put a bit more energy into warning their clients about the numerous 'bad actors' in the umbrella sector rather than just blaming HMRC for all wrongs there would be fewer exploited taxpayers.

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By Andy Keates
27th Jan 2024 12:49

A Taxpayer Bill of Rights/Taxpayers Rights Code/Taxpayer Advocate are all promising ideas, but only if properly designed and implemented, and in possession of sufficient "teeth" to ensure that HMRC actually complies.

Remember the original "Taxpayers' Charter"? The John Major one, which was launched to much PR trumpeting, but was little more than a bundle of aspirations which had no real effect on the behaviour of the Revenue and was, in due course, quietly buried in the backyard.

The current "HMRC Charter", introduced by FA2009, doesn't appear to be faring much better, if 15 years on we are still seeing such egregious instances of HMRC arrogance and overreach.

One line from that Charter is worth quoting: "We’ll assume you’re telling the truth, unless we’ve good reason to think you’re not". The number of appeals going to FTT where HMRC have miscategorised obvious simple errors as "deliberate behaviour" (in order to get bigger penalties and longer assessing windows) seem to suggest otherwise.

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By moneymanager
29th Jan 2024 10:36

"there is a sense of the government protecting its institutions over the rights of individuals'.

It's done that for a very long time, just last week a Scottish Court ruled on a most absurd extradition demand by France, not of a murderer, sexual deviant, or thief if any kind but rather of a mild mannered Frenchman who's only 'crime' has been to challenge official historical narratives, most prominently the true course of the undoubted tragedy at Oradour sur Glane officially a solely massacre by the Germans while Vincent Reynouard points out numerous inconsistencies, not least of which were the hundreds of American made shell cases i.e. There was a resistance arms dump which exploded in a fire fight.

Now its well known that many French hated the Germans only barely more than they hated each other, British special ops people have spoken of that, in 1945 the first priority of the French state was at least the veneer of cohesion and de Gaulle liberally applied the 'eponger', wiping the slate clean, without honesty that just buried animosities.

So why has that Scottish Court decided to return a political refugee to France and almost certain incarceration, simple, because British governments have been every bit as complicit.

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Replying to moneymanager:
John Hextall
By John Hextall
29th Jan 2024 15:01

Do you mean Vincent Reynouard the Holocaust denier and prominent neo-[***]?

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Replying to John Hextall:
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By Rammstein1
29th Jan 2024 16:11

Wow, hardly a 'mild mannered Frenchman'!

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By indomitable
29th Jan 2024 15:21

Absolutely whole heartedly agree with the article. HMRC show time and time again their bullying tactics.

MP's also seem to be unable to reign in any civil service department, so yes HMRC need independent oversight that has legal teeth.

However don't think it will happen, just another on the long list of things parliament needs to deal with but won't or can't.

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