Thread by @keithmgordon

I have had a chance to read HMRC's evidence to the Morse review.

These are some initial observations on a section-by-section basis.

HMRC’s evidence suggests:
The FA 2011 changes led to an initial fall in scheme use
However, the number of schemes reached the previous peak in 2013/14 but then started to fall away again
This was at the same time as HMRC began to co-ordinate its response to these arrangements.

This raises further questions as to the effectiveness of HMRC’s response. Given the co-ordinated strategy, there's really little excuse for not having opened enquiries into taxpayers’ returns for 2013/14 as such enquiries would generally have had to have been opened by 31/1/16.

Furthermore, by then, HMRC ought to have been aware of the repercussions of their own revised strategy in the Rangers case and taken timely action against the employers (which is what Rangers says should have happened).

HMRC’s data about 65% of participants being in “business services” disguises the fact that a large proportion were IT consultants contracted to work for national and local government (including HMRC themselves).

HMRC’s evidence candidly admits that the 2011 changes led to an evolution of the schemes leading to “the development of self-employed, partnership and onshore employer schemes after 2011”. It is this point that has attracted most criticism of Sir Amyas’s report ...

It is this point that has attracted most criticism of Sir Amyas’s report as the report proceeded on the mistaken assumption that the position was clear for all types of scheme after that time. In fact, the 2011 changes affected only schemes dealing with employees.

Moving onto section 2:

HMRC’s evidence on their reg 81 powers is very misleading.

The evidence states as follows:
Under regulation 81 of the PAYE regulations, HMRC can transfer an Income Tax liability arising under the DR rules, which includes the underlying liability and the loan charge, to an employee where:
...

...
"• HMRC has issued a determination to an employer in respect of the liability; • the determination has become final; and • the employer has not paid the liability within 30 days."

There is a glaring omission in this statement.

What HMRC’s evidence overlooks is a fundamental additional condition which is there to protect taxpayers.

That additional condition is that the employee must have received the payments “knowing that the employer has wilfully failed to deduct the amount of tax which should have been deducted from those payments”.

It appears, therefore, the HMRC failed to tell Sir Amyas of one of the fundamental protections in the PAYE code and misleadingly gave the impression that HMRC can transfer liability from the employer to the employee at will.

And now section 3 of the evidence.
HMRC’s evidence says “We are not aware of any public sector organisations actively promoting the use of DR tax avoidance schemes to their employees or contractors.”

This needs to be understood in the light of what I've heard from contractors.

What I have been told is that the public sector organisations gave their contractors a list of approved (and indeed mandatory) agencies and told them to sign up with them.

It appears that HMRC recognise this in their own evidence when they include the word “actively”. In other words, HMRC appear to acknowledge that there was tacit encouragement.