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Consultation launched to root out contractor tax cheats

A new consultation has been launched with an eye towards rooting out tax cheats by making anyone using tax avoidance schemes pay their taxes up front.

The new proposals are specifically looking to target contractor tax cheats in particular. The Treasury still has a massive vendetta against tax avoidance schemes – a crusade that seemed to blossom overnight after the revelation that Jimmy Carr was using the K2 scheme to his massive advantage – and while few of these schemes have been classified as outright illegal, the view of the Government is that using any sort of tax avoidance scheme is highly suspect, especially when used by a well-paid contractor to avoid paying higher tax rates.

I’m sure many people will see this as an important step in stamping out tax avoidance completely, and for the most part I can sympathise with them. However, one man’s tax avoidance scheme can easily be another’s tax planning initiative, and the lines can tend to be blurred from time to time – often to the detriment of honest taxpayers who thought they were playing by the rules. Look at the massive amount of energy spent by Her Majesty’s Revenue & Customs in pursuing tax avoidance by way of disguised employment, for example – HMRC’s IR35 investigations have rocketed upwards, leaving many freelancers and contract workers worried that they’ll be raked over the coals needlessly.

And yes, I do mean needlessly; plenty of contract workers may be investigated only to find no evidence of disguised employment. However, the financial toll it can take on a freelancer can be heavy, especially if they have to mount a defence to such an investigation without IR35 insurance cover. Some believe that this is just the Treasury’s way of maing sure everyone’s paying their fair share, but attempting to squeeze every last penny it can from honest Brits seems to me like it’s a case of throwing the baby out with the bathwater. There needs to be better distinctions put in place and more discretion used when it comes to investigations – and also more transparency when it comes down to whether a tax planning scheme is in danger of being classified as the so-called ‘aggressive’ tax avoidance that could get a contractor in more than a small spot of bother!

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