HMRC restarts tax compliance activity

The tax office has “quietly” resumed tax compliance activity after pause due to COVID-19

After temporarily stopping tax investigations in order to free up resources in the fight against COVID-19, it has been reported that it is “business as usual” once more for HMRC.

With tax receipts said to have plummeted by 42% in April compared to the previous year - at a cost of nearly £26bn to the Treasury, according to The Telegraph - HMRC “quietly” restarted its enquiries recently as the Government focuses on repairing the economic damage caused by the pandemic.

Having committed billions to support employees, self-employed workers and businesses, the Chancellor now faces the daunting task of raising revenue for the UK economy, which shrunk 20.4% in April - the largest monthly contraction on record, as reported by The BBC. And while it is accepted that this is a global crisis, the Organisation for Economic Co-operation and Development (OECD), has warned that Britain’s economy may be impacted more than any other developed country.

This means “there is no doubt that HMRC will be under pressure from the Government to look at anyone that they think is defrauding the system as a matter of urgency”, explained Blick Rothernberg’s Fiona Fernie, who broke the news of HMRC’s activity in a recent blog.

Fernie also explained that the Government assistance provided to “businesses and individual taxpayers in recent months have been costly and they will want to ensure that borrowing requirements are not exacerbated by taxpayers who are not paying the correct amount of tax.”

In the short-term, it’s thought that the tax office will pay close attention to those suspected to have abused the Coronavirus Job Retention Scheme (CJRS) and other COVID-19 initiatives.  Meanwhile, individuals and businesses that took up HMRC’s opportunity to place investigations on hold have been urged to prepare to resume discussions.

While HMRC has remained predictably quiet about its increase in compliance activity, a spokesperson for the tax office responded to a request from Recruiter magazine, explaining: “We are prioritising work to support our customers, while tackling serious fraud, criminal attacks, and those who promote tax avoidance. We will continue to work with customers if they want to settle their tax disputes with HMRC. We will continue to respond to taxpayers’ individual circumstances, giving people more time to respond where appropriate.”

Even so, contractors are advised to take note. Given the current circumstances, it seems unlikely that HMRC will apply a light touch. The Government is clearly in need of revenue, meaning HMRC could aggressively pursue tax and IR35 compliance.

Following the last-minute delay to IR35 reform in the private sector, which will now be introduced 6th April 2021, contractors will carry the IR35 risk until then. Taking this into account, independent workers will continue to be subject to IR35 enquiries regarding engagements held in the current tax year and liable for any resulting tax payments.

Also worth noting is that HMRC can investigate contracts that took place up to six years ago, should the tax office suspect non-compliance.

With over 25 years’ experience, Qdos provides leading tax support and tax liability insurance for freelancers, contractors and the self-employed. From tax advice, protection and a number of vital business insurance policies, we offer a range of trusted services to the UK’s growing independent workforce.