The Chartered Institute of Taxation (CIOT) has welcomed a parliamentary report published today which calls for stronger safeguards against misuse of HMRC powers.
The report, ‘The Powers of HMRC: Treating Taxpayers Fairly’, comes from the House of Lords Economic Affairs Committee’s Finance Bill Sub-Committee, which took evidence from CIOT and others over the autumn.
CIOT has responded to a number of the report’s recommendations.
Proposed new power: offshore time limits
The committee said: “We consider the extension of time limits to 12 years for offshore matters unreasonably onerous and disproportionate to the risk.” (paragraph 41) “We recommend that it is withdrawn.” (Paragraph 44)
John Cullinane, CIOT Tax Policy Director, said: “The Lords are right to ask the government to think again on this proposal, which will be debated in the next few days as part of the current Finance Bill.
“Strong powers to tackle offshore tax evasion are justified, but this measure is about non-deliberate errors and carelessness. It comes at a time when HMRC have access to a bigger armoury to deal with offshore non-compliance than at any time in the past. They are receiving very large amounts of taxpayer data through Exchange of Information Agreements with overseas tax jurisdictions and they have showcased powerful internal systems to analyse the data.
“If the extended time limits are introduced they should only be applied to offshore matters involving ‘high risk’ jurisdictions - those that have not agreed to share any tax information with HMRC. That would be a more proportionate approach.”
The 2019 loan charge
The committee said: “We recommend that the loan charge legislation is amended to exclude from the charge loans made in years where taxpayers disclosed their participation in these schemes to HMRC or which would otherwise have been “closed”.” (Paragraph 78) “We recommend HMRC urgently reviews all loan charge cases where the only remaining consideration is the individual’s ability to pay.” (Paragraph 80)
John Cullinane said: “We welcome the fact that the Lords have examined this, identifying a number of ways in which the charge will cause financial difficulty to some taxpayers. HMRC do have some discretion to address problems of this nature but this can only be exercised on the basis of a sensible and realistic view of the individual’s circumstances. We strongly urge those who are concerned with the possible personal impact of the loan charge to approach HMRC on an individual basis.”
The tax policy process
The committee said: “Consulting on policy objectives before a specific solution has been identified is fundamentally important to the policy making process. This step is too frequently omitted with inadequate justification.” (Paragraph 121) “We recommend that consultation should begin at this stage whenever the introduction or expansion of powers is under consideration.” (Paragraph 122)
John Cullinane said: “We are delighted that the Lords have given such strong support to early stage consultation on tax policy. This was a central recommendation of the Better Budgets report, published last year by CIOT, the Institute for Government and the Institute for Fiscal Studies. We see in measures like the offshore time limits extension (see above) what happens all too frequently when the government skip the first stage of the consultation process.”
The committee said: “We recommend that the Treasury, as part of the next Spending Review, assesses whether HMRC is adequately resourced to fulfil its Charter obligations.” (Paragraph 171) “The Government should consider an independent review of HMRC resources more widely.” (Paragraph 172)
John Cullinane said: “The committee are right to focus on the issue of HMRC resources. It seems to us that many of the changes we have seen have been determined by HMRC capacity. Lack of resources then leads to poor application of powers. This is unsustainable. Ultimately the risk is HMRC are seen as being ‘against taxpayers’ so undermining effective compliance.”
HMRC’s powers review
The committee said: “We recommend that the Government establishes a new Powers Review, both of the cumulative effect of recent developments and what is needed for the future as tax administration moves to digital systems.” (Paragraph 187)
John Cullinane said: “A new review is needed – albeit one that should not be as extensive and lengthy as the last one – to establish the principles that should govern HMRC’s powers in a digital age. Such a review should start at stage 1 of the consultation process asking what broad changes might in principle be necessary to the 2005-12 framework, and why; acknowledging that the ultimate way forward will need to take account of the piecemeal changes since.
“The transition to digital is transforming tax administration; the nature and operation of HMRC’s powers needs to reflect this fundamental change. The last comprehensive powers review took place before this digital transformation was under way.”
The committee said: “We recommend an independent review, commissioned by the Treasury, to consider the establishment of an independent body to scrutinise the operations of HMRC.” (Paragraph 196)
John Cullinane said: “It is interesting that the case for greater scrutiny of HMRC is being made from two very different angles: for the Lords it is primarily as a safeguard to protect taxpayers from an apparently overmighty tax authority; for many MPs such as those on the Public Accounts Committee it is as a watchdog to ensure HMRC is being sufficiently dogged and aggressive in its pursuit of big business seen as paying suspiciously low rates of corporation tax.
“That does not make the committee’s call wrong, but it does mean that we need very careful consideration of how any independent body would operate and what its remit might be. Historically great effort has gone into keeping politics out of tax collection at the level of the individual firm or taxpayer. It is important that any new scrutiny body retains that separation.”
Notes for editors
1. CIOT’s written evidence to the Committee can be found here.
2. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: George Crozier, Head of External Relations, 0207 340 0569 or GCrozier@tax.org.uk
(Out of hours: 07740 477374)