HMRC hired contractors using disguised remuneration, APPG reveals

The latest APPG report on the loan charge has revealed that HMRC hired a number of contractors in the run-up to 2018 who were using disguised remuneration schemes

In a Freedom of Information request to HMRC, the All-Party Parliamentary Loan Charge Group was told that five contractors were identified as being open to the loan charge as they had benefited from disguised remuneration (DR).

The contractors were hired by wholly owned subsidiary company, Revenue and Customs Digital Technology Services Limited (RCDTS).

The APPG report stated: ‘As has been previously provided, in November 2018, HMRC was aware of five individuals who had a history of using DR schemes and providing services to HMRC. HMRC records did not show these individuals to have utilised a scheme while services were provided to the department…In October 2020, a further analysis of these individuals using “updated compliance” information was provided. This further analysis showed that in two cases, the usage of a DR scheme was concurrent with the provision of services to HMRC.’

The MPs on the loan charge group is calling for an investigation into this, including looking at whether the Civil Service Code may have been broken.

Even following the introduction of the Loan Charge legislation in 2016, HMRC continued to take on contractors who were using DR schemes and remarkably this continued right up through to 2020, the APPG said.

HMRC claim that they ‘have always been clear’ that the schemes subject to the Loan Charge were unacceptable and ‘did not work’. They have also claimed that they communicated this view effectively, the APPG report stated.

An HMRC spokesperson said: ‘HMRC senior leaders did not mislead members of the House of Lords and we have never endorsed or participated in disguised remuneration tax avoidance schemes. It is possible for contractors to use disguised remuneration without the participation or knowledge of their engager.

‘Whenever it is or has been discovered that a contractor, providing services to HMRC or RCDTS, is currently using a disguised remuneration scheme, we have acted and will act promptly to terminate the relevant engagements.

‘We continue to warn people about the risks of using tax avoidance schemes and our advice remains the same – if something looks too good to be true, it almost certainly is.’

The MPs are still calling for the repeal of the loan charge rules.

‘We believe this is yet more evidence that shows that the conclusion that the “law was clear” from 2010 is unsound and that the continued imposition of the retrospective Loan Charge is unjust and that this should be revoked, to restore the right of affected taxpayers to challenge HMRC in the tax tribunal system and to avoid the bankruptcies and breakdowns that will alas, otherwise happen as a result of facing the Loan Charge.’

The next step should be an independent investigation.

‘We believe that there needs to be a full investigation into the matter, not conducted by HMRC or the Treasury. Senior officers within HMRC must provide a full and honest account of their actions in relation to these disclosures, the information exposed via the FOI responses and the way in which HMRC have responded to inquiries from MPs and Parliamentary Select Committees. This investigation should include looking to see if any HMRC officials have breached the Civil Service Code,’ the report concluded.

The MPs have also written to HMRC head Jim Harra calling for an investigation. The letter also stated: ‘So HMRC, presumably including senior officials, have been involved in a decision to fail to inform a Parliamentary Select Committee regarding an important matter the Committee had asked about, for the clear reason that the sharing of this information was “sensitive” and embarrassing to HMRC.’  

Loan Charge All-Party Parliamentary Group Report on HMRC use of contractors using ‘disguised remuneration’ schemes

APPG letter to Jim Harra, HMRC

Sara White |Editor, Accountancy Daily, published by Croner-i

Sara White is editor of Accountancy Daily, published by Croner-i, and in...

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