At a heated debate on the extension of HMRC powers, tax advisers objected strongly to plans to introduce new powers for HMRC to collect unpaid tax, with particular antipathy to the proposed direct recovery of debt (DRD) proposals, which they claim have simply been dusted off and resubmitted after they were rejected by the last government six years ago.
Jim Harra, HMRC director general for business tax, mounted a strong defence of the plans and refuted claims that the measures represented a power too far. ‘Our powers are subject to extensive safeguards and we need to ensure that they are used proportionately. As we get more effective at tackling boundary pushers, if we think we need more powers we will ask for them,’ said Harra.
‘The DRD is the most controversial power we are consulting on and accelerated payments is a game changer, particularly for those holding out until decisions are taken in long-running cases and those that are hoping that HMRC will not get around to investigating a scheme.
‘The move reflects the expectations of the public. Some of the objections are reasonable, but some of the objections are just fanciful. I think we can be trusted with the powers we are given.’
While DRD is not popular, lack of trust in HMRC’s ability to identify and calculate the correct tax for the identified non-payer, as well as questions over redress methods and safeguards for taxpayers were the key issues for opponents of the system. At the same time, the lack of debate and scrutiny of new tax law left advisers fearing that the new powers would be poorly written into law in the rush to push through the measure.
In an emotive argument, James Bullock, head of the litigation and compliance group at Pinsent Masons said that DRD was a real concern for the profession: ‘This runs the risk of going against the constitution. In our view the powers over self assessment [introduced from the 1990s] were fair and are underpinned by the scrutiny of tribunals so in essence the checks and balances are there. The GAAR and modernising the tax system is also reasonable.’
Harra said the DRD scheme was a way to collect unpaid taxes from tax evaders who ‘simply refuse to engage with the system and will not pay their bills, even though they have the funds available’, equating DRD to the PAYE system, where companies deduct tax and national insurance for employees at source.
However, Bullock said that the new accelerated payment system is ‘egregious, forcing taxpayers to pay up before the case goes to tribunal. It’s a distraction to put these people in a position as if they were in PAYE’, he added. ‘It will catch a compliant regular taxpayer if they have invested in a scheme which is in DOTAS – this is retrospective legislation.
The new accelerated payment system is ‘egregious, forcing taxpayers to pay up before the case goes to tribunal'
'The third provision is a strict liability offence if people hold an overseas account - we naively assumed there would be a penalty and maybe the individual would be put on a blacklist,’ said Bullock. ‘But that the offence should carry a prison sentence - I am particularly worried about this,' he added. It is a new fiscal version of internment without trial. If we start drafting authorisation provisions which bypass the courts, where will this end?’
There was strong objection to the 14-day limit for immediate payment once the nine-letter warning system was exhausted. There were calls for an extension to 30 days, which Harra said would be considered. Many also said that the powers were unnecessary as HMRC can already use the county court system to recover tax debts.
Jolyon Maugham, a barrister at Devereux Chambers, was in favour of the extension of powers. He said: ‘What is HMRC to do with a man that will not engage?’ Stressing the importance of ensuring adequate safeguards were in place, he cited para 3.26 of the consultation. ‘Debtors will continue to have the right to judicial appeal. Debt will not be applied to leave you with less than £5,000,’ he said.
‘HMRC debt collection teams can take your telly without judicial supervision. This [DRD] is not crossing some constitutional rubicon.’
Recovering £100m in unpaid tax, claims HMRC
DRD is expected to recover £100m in unpaid tax debts according to HMRC in the first year if it is passed into law and comes into effect in 2015. This is a tiny percentage of the total tax gap, estimated at £44bn plus. Unpaid tax debts are estimated at £4.4bn a year and Harra said ‘a quarter of the outstanding debtors had more than £50,000 in their bank accounts’.
Anne Fairpo, president of CIOT said: ‘One of the questions is whether HMRC has enough resources to do its job – is it going to be able to collect these taxes with the people and funding it has, or does the government need to look at this differently. That is why people are raising the county court issue – that costs HMRC time and money – it is expensive to use that route.
The consultation on DRD closes on 29 July and is available here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/309624/Direct_Recovery_of_Debts.pdf
Responses to the consultation should be sent to Andrew.firstname.lastname@example.org
The CIOT debate was filmed by Tiger Aspect Productions for the upcoming series, Meet the taxman, on Channel 4.
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