The Powers of HMRC – a House of Lords Committee report is very critical

The House of Lords Economic Affairs Committee has published a report on “Powers of HMRC: Treating Taxpayers Fairly

This is the 14th annual report of the sub-committee, of the main Committee, into selected aspects of the particular year’s Finance Bill.

This report is into the balance of powers, and safeguards, between HMRC and the taxpayer.

Frank Haskew, Head of Tax Faculty, commented on the report as follows:

“The House of Lords has highlighted a number of concerns about the current balance between HMRC’s powers and taxpayer rights. Since the comprehensive review of HMRC’s powers concluded in 2012, we have slowly seen a shift in the balance being in favour of more powers for HMRC which are not always matched by corresponding taxpayer safeguards, for example the power to appeal against an accelerated payment notice. The report makes a number of recommendations which include a proposed new review of powers to consider the cumulative effect of recent changes and to identify what is needed as tax administration goes digital. ICAEW, which gave evidence to the committee, would be happy to support and contribute to such a review.”

The key recommendations in the report are:

  • The government should consider widening the role of HMRC's Adjudicator or increasing HMRC obligations to respond to and act on Adjudicator recommendations.
  • HMRC should urgently review all loan charge cases where the only remaining consideration is the individual's ability to pay, and establish a dedicated helpline to give those affected by the loan charge advice and support. Such action should take place well in advance of the loan charge coming into effect in April 2019.
  • The government should withdraw clauses 79 and 80 of the Finance Bill, which would extend HMRC time limits to assess offshore matters to 12 years.
  • The government should withdraw its proposal, for which consultation closed in October, to remove oversight of the tax tribunal into HMRC access to information about taxpayers from third parties.
  • Penalties associated with General Anti-Abuse Rule and Follower Notices restrict access to justice and should be abolished.
  • The government should legislate to give the First-tier Tribunal (Tax) the power to conduct judicial reviews.
  • The Treasury should assess whether HMRC is adequately resourced to fulfil its Charter obligations in the next Spending Review.

Mel Stride, Financial Secretary to the Treasury, did not give evidence to the sub-committee but has written to the sub-committee to indicate that he will  “write formally to respond to the findings in the report”.

The report is highly critical of HMRC and also of the government in taking on more powers than are strictly justified and exercising existing powers without giving adequate notice to taxpayers who will be caught by the HMRC approach.

HMRC’s Your Charter states that it will tackle those who bend or break the rules:

“We’ll identify those who are not paying what they owe or are claiming more than they should and recover the money. We’ll charge interest and penalties where appropriate and be reasonable in how we use our powers.”

But the conclusion of the House of Lords report is that:

“the government’s approach does not appear to discriminate effectively between the full range of behaviours and circumstances it describes as tax avoidance. There is a clear difference in culpability, for example, between deliberate and contrived tax avoidance by sophisticated, high-income individuals, and uninformed or naive decisions by unrepresented taxpayers. Clearer distinctions are needed in the Government’s approach and rhetoric towards tax avoidance.”

The Committee was concerned with the increased time limit to 12 years when taxpayers have offshore elements in their tax affairs.

The Committee was also concerned with the enhancement of HMRC’s civil information powers on which the consultation ended in October. The Committee felt that the proposal that HMRC should be able to obtain information from third parties without first seeking the approval of the taxpayer or the tax tribunal would remove an important taxpayer safeguard and the proposal should be withdrawn pending a full consultation as to how any new legislation could be better targeted.

The Committee was also concerned by the 2019 loan charge which derives from the measures in Finance (No 2) Act 2017 to combat “disguised remuneration” schemes. The Committee felt that HMRC was not taking sufficient action against those who promote such schemes but was “prioritising recovery of tax revenue over justice by targeting individuals, rather than promoters (who could be considered more culpable), so it can more easily recover liabilities”.

The Committee recommended that there needs to be a new powers review, following on from the Powers Review after the merger of Inland Revenue and HM Customs and Excise in 2005. The Committee report view is:

“The Powers Review demonstrated the importance and advantages of developing a tax powers framework on an agreed set of principles. These principles are being forgotten in the push to tackle tax avoidance and evasion with fewer HMRC resources.”