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HMRC backlog could be costly for contractors

It’s nothing new that the taxman has a massive backlog, but news has emerged that contractors and other sole traders could be even worse off because of it?

Well, it’s true – according to industry expert Jason Collins. An expert on tax law with a major accountancy firm, Mr Collins says that foot-dragging on the part of Her Majesty’s Revenue & Customs could cost smaller firms a pretty penny, thanks to the vicissitudes of how tax disputes are resolved. VAT payments are required by HMRC ahead of any resolutions, and while a contractor could see that cash refunded if they prevail in their dispute, that money could be tied up for months and months – and good luck getting by without that working capital in this economy!

Even worse is that you can still lose out if by some stroke of luck you manage to postpone your payments until the resolution of your case, said Mr Collins. It turns out that the taxman collects underpayments at plus 3.5 per cent interest, but if it turns out you overpaid HMRC, you’re only going to pull down a 0.5 per cent interest rate on your overpaid funds.

Is it just me or does this seem incredibly unjust by more or less every angle? I mean come on – for what it’s worth, HMRC should provide at the very least an interest rate equal to the current cost of living on funds that are overpaid to it, especially since inflation is still much too high in my opinion. If it’s going to take months to get your cash back from the tax authority, the value of that money is eroding slowly but surely over time – and at 0.5 per cent interest, that’s simply not enough to counteract the slow burn of inflation over any period of time.

Then again I don’t see how we should expect any sort of fairness from the taxman, especially when it comes to small business owners and the self-employed. HMRC has a rather unfortunate reputation for going after the little guy even though there are wealthy multinational companies making money hand over fist and ferreting away their ill-gotten gains overseas in tax shelters, yet somehow the fact that these massive corporations aren’t paying their fair share doesn’t seem to register on HMRC’s radar. Maybe if your local freelancer made a multi-million pound donation to the Tories, the taxman would change its tune, hmm?

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