Helping hand

KEY POINTS

• Tax can be as complex for the low-paid as it is for the better off.
• Inappropriate self-employment causes problems for those who cannot afford advice.
• TaxAid and Tax Help for Older People helped 25,000 people in the past year.
• Bridge the Gap campaign seeks to raise awareness and funds.

Tax is not something you can opt out of. So everybody should be able to deal with their own tax. Some people’s affairs are sufficiently straightforward that they can handle it themselves.

Others can seek help from their friends or family but many need the services of a professional tax adviser. They include some people on higher incomes and most who are self-employed.

However, tax can be as complex for those on low income as it is for the better off.

Some people do not understand HMRC communications and cannot see how to respond. Many with multiple small incomes and pensions struggle to understand their various tax codes and HMRC’s form P800.

Those with an apparent underpayment can be pitched into self assessment and then incur late filing penalties. Difficult situations in life also create particular tax difficulties: bereavement, serious illness, loss of home or business are all examples.

HMRC’s greater focus on compliance and increased action against debt can be blunt tools. People who do not know how to respond need professional advice. Others find themselves in abusive employer situations, which create inappropriate self-employment, under-declaration of tax or even identity fraud.

These can produce problems for National Insurance benefit entitlement as well as tax. Alternatively, some suffer from rogue “accountants” or scams. All these people need advice from a professional tax adviser and many also need representation.

Inappropriate self-employment

Self-employed status can be very attractive to well-advised high earning professionals, but it is different for the unrepresented low earner. There is the duty to notify HMRC and complete difficult forms. Then they must set aside funds to pay bewildering amounts, which bafflingly include National Insurance contributions (class 4), even though National Insurance is already being paid by direct debit (class 2).

An employee is asked to do little more than notify a change of address, and may have tax arrears written off under extra-statutory concession A19, but the self-employed face a phalanx of penalties, enquiries, seizure of property and even bankruptcy if they get things wrong. So, in status cases, we often argue that our client has been employed.

Sara fled her home in Africa and, in 2010, gained permanent leave to remain in the UK which gave her the right to work. She was put in touch with two sisters, whose elderly mother had dementia and needed a full-time carer for 12 months.

The sisters did not want to become employers, and Sara had to sign a contract that included a statement that she was an “independent contractor” and “not the servant” of the sisters, a requirement to render invoices, and a provision for “assignment or subcontracting” (but only with the sisters’ permission which “would not be unreasonably withheld”). Sara understood none of this, although one sister mentioned she should speak to the tax authorities, and she was duly registered as self-employed.

Sara faced £1,600 penalties for not filing her 2012 tax return, and the Citizens Advice Bureau (CAB) referred her to us. We established that she was not really self-employed: no invoices were ever rendered, the sisters had been clear she could never send a substitute, and in no sense was she running her own business.

We asked HMRC for a status ruling. They agreed that Sara’s care work should be classified as “employment”, and cancelled her tax return and penalties.

Note that there is excellent guidance on the taxation of carers, published by the Low Incomes Tax Reform Group.

Identity theft

Ahmed is 29 and sustained a bad injury at work which causes regular headaches and slurred speech. He lives with his parents and manages some part-time construction work, receiving small tax refunds each year. A few months ago, he received a letter from HMRC demanding details of all his income for the previous six years.

After some persuasion he agreed to our calling the compliance officer who was concerned he “might have owned property with a £72,000 mortgage” and his monthly payments needed to be reconciled with his low declared income. She was happy to limit her initial enquiry to three years and gave us the time needed to produce our figures.

Ahmed then revealed to us that he had been what sounded like the victim of an identity theft. Someone had used his personal details to purchase a property on a Halifax mortgage, which they had later sold, and disappeared. The Halifax was pursuing Ahmed for outstanding payments and the CAB was helping him with this.

We contacted the CAB and two weeks later they forwarded a letter they had just received from the Halifax agreeing that Ahmed was not the borrower. We passed this to HMRC who closed the enquiry.

Charities that help

Two charities exist to help vulnerable people like Sara and Ahmed. Both were founded by tax professionals because they saw this need at first hand and both have been helping vulnerable people for more than 20 years. TaxAid focuses on working-age people; Tax Help for Older People serves the over-60s. In effect they provide the tax profession’s safety net.

Many of their clients are vulnerable. Some have physical or mental illness; others have literacy problems; some are aged and struggle with multiple small income sources.

Those who have had catastrophic life events, such as terminal illness or loss of home, family, or business are particularly in need. They all say they struggle with a tax system which to them is arcane and administered in a way that does not always take into account their circumstances.

The need for the services of TaxAid and Tax Help for Older People has never been higher and it is increasing. Why is this? We believe there are two main factors at play. The first is that the working environment is becoming harsher. More people are in low-paid work; some have several part-time employments and many are caught in low income self-employment.

Older people are facing lower incomes on retirement and many have to find part-time employment. So there are more vulnerable people on low incomes with potentially more complex tax situations.

The second factor is that the tax regime has become more difficult for them. As well as the greater complexity of tax rates and allowances, people also face late filing penalties and a greater focus on compliance and debt recovery. All these changes bear heavily on people on low incomes.

Where else could people turn for support? Help from families or friends or paid-for professional tax help are not open to the charities’ clients. Nor can they turn to HMRC because they need independent advice (and sometimes representation).

They also usually need extensive support and their inability to pay makes it difficult for the profession to help them.

Some professional firms provide pro bono support, perhaps to clients who have fallen on hard times. But this is not available to the people helped by TaxAid and Tax Help for Older People. Their work bridges a gap.

Vulnerable clients

Jason is a self-employed driving instructor in his early 60s. He has chronic depression and for many years found it impossible to open brown envelopes received from HMRC. Fortunately his wife could help manage his tax affairs, but then the couple split up and for a number of years he was in effect homeless, living with a succession of friends.

By the time he came to see us, there were several outstanding tax returns and late filing penalties running to more than £3,000. We spoke to the HMRC’s voluntary sector helpline which specified what was required to bring his affairs up to date and, in view of his mental ill health, allowed an extended period for this to be completed.

We then worked intensively and sensitively with him, and eventually filed all the outstanding tax returns. These were not straightforward because he had acquired assets on hire purchase.

After some persuasion Jason agreed to obtain medical evidence of his depression from his GP. This formed the basis of an appeal against the penalties imposed for late filing of his tax returns, and HMRC accepted that he had a reasonable excuse and cancelled the penalties.

The outstanding income tax liability was just over £2,500. Jason was not in a position to settle this, but felt comfortable that he could draw up a list of his income and outgoings, and then enter into an arrangement with HMRC’s Debt Management and Banking.

As our approach is to help people to help themselves as far as possible, this seemed a sensible arrangement and Jason knows that he is free to return to us for further advice should these negotiations falter.

Bridge the Gap campaign

TaxAid and Tax Help for Older People have worked well together but they are faced with a significantly growing need for their services. Last year, they helped 25,000 people. But they know that at least 6,000 more people needed their services than they had the resource to help. (The number is probably much higher than that but it is difficult to estimate so they are focusing on the known need.)

The charities have launched a joint campaign to seek support from the tax profession to enable them to help more vulnerable people in crisis with their tax. The Bridge the Gap campaign will enable them to help 6,000 more vulnerable people who need tax advice but cannot afford to pay for it.

This campaign has won the strong support of the Chartered Institute of Taxation and the Association of Taxation Technicians. Now the ICAEW Tax Faculty has thrown its weight behind it. They all believe that it is important to provide a safety net for vulnerable people who need tax advice and that the tax profession should play a leading part in that.

In the first stage of the campaign, the charities are raising awareness of their work among tax professionals. Later, during next summer, they will launch an appeal to the tax profession for the funds to support a further 6,000 of the most vulnerable taxpayers a year.

Learn more about the two tax advice charities and their Bridge the Gap campaign

Issue: 4482 / Categories: Comment & Analysis