HMRC accused of 'utter hypocrisy' over use of IT contractors enrolled in tax avoidance schemes

HM Revenue & Customs’ (HMRC) stands accused of “utter hypocrisy” for hiring IT contractors enrolled in disguised remuneration (DR) schemes, despite being in the midst of a contractor-focused, anti-tax avoidance enforcement campaign.

As reported by Computer Weekly on 18 February 2021, MPs from the 240-strong Loan Charge All-Party Parliamentary Group (APPG) called out the tax collection agency for repeatedly dodging questions on multiple occasions about its alleged use of DR scheme-enrolled contractors in a letter to HMRC CEO Jim Harra.

These occasions included during a November 2018 probe by the House of Lords Economic Affairs Finance Bill Sub-Committee, while the Loan Charge APPG further claims questions it submitted to HMRC on this subject also went unanswered.

A series of freedom of information (FoI) requests were submitted to HMRC in 2019 and 2020 to ascertain whether the department, and Revenue and its Customs Digital Technology Services (RCDTS) technology subsidiary, had engaged contractors enrolled in DR schemes while working for it.  

And the responses to these FoI requests confirmed that HMRC and its RCDTS subsidiary did engage at least 15 contractors that used DR schemes between 2016 and 2020.

HMRC responded to the letter with a statement to the media stating that it is “possible for contractors to use disguised remuneration without the participation or knowledge of their engager”, and that it has moved to “promptly terminate the relevant engagements” upon discovery of any HMRC or RCDTS contractors using disguised remuneration schemes.

Even so, Loan Charge APPG MPs are now calling for HMRC to face investigation for a possible breach of the civil service code, on the basis that it neglected to pass on information about its contractors’ use of DR schemes to the House of Lords Economic Affairs Committee once it came to light.

Such schemes typically see contractors paid in part for the work they do in the form of non-taxable loans, and – in years gone by – were marketed to individuals as tax-compliant means of bolstering their take-home pay.

HMRC, though, is of the view that because these loans were never intended to be repaid, they should be reclassified as income and taxed accordingly. And since November 2018, it has been pursuing contractors to repay the tax it claims they avoided by participating in these schemes from December 2010 onwards, through its Loan Charge policy.

In some cases, the sums of money HMRC is pursuing contractors for are life-changing, and the policy has been linked to at least seven suicides.

For this reason, the Loan Charge APPG and the Loan Charge Action Group have been campaigning for all of the policy’s retrospective elements to be removed for several years now, and there have also been calls for HMRC to introduce more manageable settlement terms for contractors caught in the policy’s scope.

Steve Packham, a spokesperson for the Loan Charge Action Group, echoed the Loan Charge APPG’s calls for HMRC to face an investigation over its own use of DR-scheme enrolled contractors.

“This is a damning report. Both for the utter hypocrisy of using contractors using arrangements they [HMRC] claim aren’t acceptable, but also for the disgraceful way they [HMRC] continue to act in a dishonest and dishonourable way over the loan charge,” said Packham.

“The information revealed through the FoI requests clearly exposes the fact that HMRC withheld information from a Parliamentary Select Committee, which is a serious matter. There must be an external investigation over this and if the Civil Service Code has any credibility, senior HMRC staff should face disciplinary action.”

Packham has also taken issue with HMRC’s response to the Loan Charge APPG’s letter, and its insistence that “HMRC senior leaders did not mislead members of the House of Lords”, describing it as “deliberately diversionary”.

“HMRC have issued what is a deliberately diversionary response to the criticism, claiming that they never misled members of the House of Lords. HMRC know full well this isn’t what the APPG report accuses them of,” added Packham.

“It is the fact that they withheld information from a House of Lords Committee, which they manifestly did. So already we have yet another example of HMRC, including senior HMRC officials, seeking to avoid scrutiny by evading the real point they are challenged over and instead giving the false impression that they haven’t done what they were actually challenged over.

“This should be shocking from any civil servants, but alas with this being HMRC, it is par for the course and a full investigation into the rotten culture of HMRC spin and propaganda is long overdue,” he added.

Computer Weekly contacted HMRC for a response to LCAG’s comments, but the department declined.