Freelancers wary of new HMRC powers

The Liberal Democrat election manifesto also stated that they would give HMRC new powers to enable them to carry this out. But some bodies are alarmed at this prospect and believe the taxman may become too heavy-handed when dealing with taxpayers.

The recent public sector funding cuts will lead to a leaner HMRC and critics fear that this, coupled with additional pressure to get the job done, will lead to the revenue being excessive in using its powers.

As from next April, people will receive stiffer penalties for failing to declare offshore funds, Capital gains Tax and Income Tax liabilities. And from April 2012, the revenue can go back a further year when investigating excise duties. Currently they are only allowed to go back 3 years.

The CIoT recently conducted a poll that found that 55% of advisers thought the volume of information sought by HMRC was unreasonable and 37% thought the revenue's new information powers had been used unfairly.

The Institute also says that there is a lack of clarity when HMRC decides which power to use in any particular case.

The issue surrounding penalties is also contentious. The revenue seems reluctant to impose high fines on people who have deliberately understated their taxes, or accept that innocent errors have been made. Instead they take the middle line saying that reasonable care was not taken. The CIoT feels that the word "reasonable" needs to be clarified.

Contractors have fallen foul to the revenue in court cases where they have had the right to be paid a gross sum by their clients removed. The taxman does not see cashflow problems as a reasonable excuse for late payments.

Tax advisers think that HMRC staff should receive more training to help them deal with complex tax evasion cases because they will then be able to use better judgement when choosing suitable powers.

Stakeholders should also train staff on the new powers and HMRC and professional bodies should work together on the subject of timescales for informational requests, adds the CIoT.

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