It seems that Whitehall departments owe HMRC £263M in unpaid taxes after the Government failed to comply with its own rules for off-payroll workers.
The Public Accounts Committee has lambasted central Government for "widespread non-compliance" with so-called IR35 rules, which require companies to determine the tax status of freelancers and contractors.
Public sector departments owed HMRC £236m in back-taxes for workers wrongly assessed as self-employed for the tax year 2020-21, the committee estimated.
It is quoted by the Telegraph:
"Such widespread non-compliance is not acceptable, particularly as government bodies should be best placed to understand the rules and communicate with HMRC."
HMRC had exacerbated the the situation by "rushing implementation" of the IR35 rules and providing "poor guidance" with no means of appealing a tax status for workers.
The Public Accounts Committee accused HMRC of having done "little to understand the wider impact of the reforms on workers or labour markets" and warned the taxman had been "too dismissive" of people and businesses reported being adversely affected by the rules.
Dame Meg Hillier, Labour MP and chairwoman of the committee, said:
"After years of fiddling with these reforms and with central government spending hundreds of millions of pounds to cover tax for individuals wrongly assessed as self-employed, the fundamental problems underlying UK taxation of work remain.
It is now up to HMRC to demonstrate that the system can work fairly in the real world; to prove that it is correctly claiming revenues under the system and that the additional revenues raised are worth the costs and unintended consequences in the labour market.
While workers in the gig economy have challenged their work and tax status in the courts, there is no recourse for workers deemed subject to IR35 tax rules despite the confusion and non-compliance that persist even in central government itself."
If a contractor or freelancer believes they have been given the incorrect tax status by a hiring company, they can challenge the decision with the business. The company must respond within 45 days, but if it refuses to change its mind the worker has no further route to appeal.
“These reforms have succeeded in making the tax system fairer, with more people who work like employees paying tax like employees, levelling the playing field for everybody else and bringing in the tax that is due under the law."
In other words HMRC isn't listening!
Tax does have to be taxing.
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