Lords call for greater oversight of HMRC powers

Recent powers provided to HMRC undermine the rule of law and hinder taxpayers' access to justice, and the tax authority should be subject to greater oversight and its powers reviewed, as the balanced has been tipped ‘unfairly’ in its favour, according to a House of Lords report

The economic affairs committee report, which forms part of the finance bill sub-committee’s inquiry into draft Finance Bill 2018-19 (FB 2018-19), says that consideration should be given to widening the remit of the Adjudicator's Office, and to oblige HMRC to follow its recommendations.

Lord Forsyth, chair of the economic affairs committee, said: ‘Since 2012, perhaps due to reduced resources, HMRC has been granted some broad, disproportionate powers without effective taxpayer safeguards. High penalties, designed to deter some taxpayers from continuing appeals against tax liabilities, are a tax on justice.’

The report is especially critical of changes to the rules regarding time limits for offshore tax enquiries and record keeping, saying the proposed extension of time limits to 12 years for assessing offshore matters is ‘unreasonably onerous and disproportionate to the risk’, and would require taxpayers to retain records for two or three times longer than currently.

It also takes aim at HMRC’s actions on disguised remuneration schemes and the introduction of the loan charge.

The report states: ‘HMRC has a range of powers at its disposal to deal with promoters of tax avoidance schemes, but we have seen little evidence of action taken against those who promote disguised remuneration schemes.

‘In the absence of publicised actions, HMRC appears to be 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 said HMRC had failed to make its position on such schemes clear at an earlier stage and had also not communicated adequately with those affected. There were particular concerns about individuals who faced severe financial hardship as the result of claims for back tax and penalties, with claims unrepresented and lower income taxpayers were disproportionately affected. 

Forsyth said: ‘We took some disturbing evidence on the government’s approach to the loan charge. This is devastating the lives of middle- and lower-income individuals, from the private and public sector (including the NHS) who used disguised remuneration schemes, in many cases being required to do so by their employers. The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry.’

The report says 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.

In addition, the committee wants the government to withdraw clauses 79 and 80 of FB 2018-19, which would extend HMRC time limits to assess offshore matters to 12 years, as well as a proposal which was recently subject to consultation and which would remove oversight of the tax tribunal from HMRC access to information about taxpayers from third parties.

The report recommends the accelerated payment notice/follower notice legislation be amended to include a right of appeal to the tax tribunal, and that whenever a new power is introduced or an existing power significantly extended it should be accompanied by a right of appeal against the exercise of the power, not just against the underlying tax liability.

It describes penalties associated with general anti-abuse rule and follower notices as ‘draconian’ and says they cannot be justified at their present level.

In conclusion, the report says that while different bodies have oversight of aspects of HMRC’s work, there is no one body which considers its behaviour in the round, including the use of new powers.

It states: ‘It may be time for parliament to rethink how it holds HMRC and the Treasury to account for the fair treatment of taxpayers. There is considerable support for new oversight of HMRC and a compelling need to address the view that HMRC is not sufficiently accountable.’

IPSE, the group representing freelance contractors, welcomed the report’s criticisms of HMRC ‘aggressive’ approach to the 2019 loan charge, which it said had caused financial ruin and serious emotional distress for ‘tens of thousands’ of taxpayers, and backed the calls to do more to tackle promotors of disguised remuneration schemes.

Andy Chamberlain, IPSE’s deputy director of policy, said: ‘The report’s description of HMRC’s approach as “aggressive”, “unfair”, “devastating” and a “tax on justice” is a damning indictment of a retrospective taxation which has left many with substantial repayment demands.

‘With IR35 reforms already ravaging the self-employed, HMRC must find a better balance and treat taxpayers fairly.

‘It is right to tackle tax evasion and tax avoidance but its approach - which HMRC itself has conceded will cause some individuals to “‘become insolvent” - is having a chilling effect on our flexible labour market.’

Commenting on the report Frank Haskew, Head of ICAEW tax faculty, said: ‘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.’

'HMRC Powers: Treating Taxpayers Fairly' is here

Report by Pat Sweet

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