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HMRC’s powers need to take into consideration aggressive tax versus careless mistakes

There is a major concern over how the Government will respond to the House of Lords' Select Committee’s review of HMRC's powers.

Fiona Fernie, a partner at Blick Rothenberg, said, “Whilst it is clearly important for HM Revenue & Customs (HMRC) to have adequate powers to combat deliberate evasion and aggressive tax avoidance, the increase in HMRC’s powers over the last few years has in some areas been disproportionate to the risk. In addition, taxpayer safeguards have not kept pace, meaning that any disagreement between HMRC and taxpayers has become increasingly one-sided.”

She added, “HMRC does not make sufficient distinction between those who have made mistakes, those who are careless and those who have deliberately set out to ‘buck the system’. The proposal in the 2018 Finance Bill to extend the time limits to 12 years for HMRC to make assessments in relation to non-deliberate tax non-compliance in respect of offshore matters is a case in point. Not only would the proposed measure remove the current distinction between an innocent error and carelessness in terms of assessment time limits, it would also require taxpayers to maintain records for several years more than currently in order to support their position. There is also no proposal for an accompanying increase in the time limits for those who have overpaid tax to claim a refund.”

Fiona said, “The Select Committee’s report makes it clear that they believe that the balance of power has shifted too far in HMRC’s favour and makes a number of recommendations; one of which is the removal of the increased assessment time limits from the Finance Bill.”

A number of other important issues were covered by the report:

  • Proposed new civil information powers;
  • Taxpayer safeguards and access to justice;
  • The 2019 loan charge;
  • HMRC’s changing culture;
  • Powers Review principles;
  • HMRC’s powers and accountability.

Fiona added, “In each of these areas the Select Committee have made recommendations, all of which suggest that there needs to be an increase in safeguards for taxpayers, and in some cases amendments to current legislation to assist that aim. Indeed the report specifically says, whenever a new power is introduced or an existing power is significantly extended it should be accompanied by a right of appeal against the exercise of the power, not just against the underlying tax liability.”

She said, “The concern is of course that the recommendations are completely ignored, in much the same way as responses to HMRC consultations are frequently ignored. In particular the House of Lords has no power to amend ‘Money Bills’ and it is therefore quite possible that the recommended changes to the Finance Bill will not be implemented.”

Fiona continued, “The hope is that, if the proposals for the Government to establish a new Powers Review, (since the last one concluded in 2012), to assess the cumulative effect of the developments of HMRC powers in recent years to ensure that taxpayers are treated fairly and that HMRC is properly held accountable, this will ensure that HMRC’s operations are properly scrutinised, that powers are used sensibly and that taxpayers are provided with adequate safeguards.”

She added, “There has been significant focus in recent years on the perception that individuals are seeking to reduce their tax bills inappropriately. HMRC rightly has to focus on collecting the correct amount of tax from the correct individuals, but they should not lose sight of the fact that the vast majority of individuals are making every attempt to pay the right tax at the right time – there should not be a culture of fear associated with dealing with HMRC.”
For more information contact Fiona Fernie.

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