Post Office and HMRC: Two peas in a pod?by
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.
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.
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Dave Chaplin is the CEO and founder of contracting authority ContractorCalculator and tax compliance firm IR35 Shield. Dave was an IT contractor before founding ContractorCalculator in 1999. IR35 Shield enables firms, agencies and contractors to remain...