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Budget 2008: HMRC’s powers and deterrents
The review of HMRC's powers, deterrents and safeguards will continue into 2008 following the consultations issued in 2007. To re-cap on the new regime which applies from 6 April 2008:Penalties for incorrect returns and failure to notify a taxable activity
There will now be a single penalty regime for incorrect returns across all taxes, levies and duties administered by HMRC. The penalty will be determined by the amount of tax understated, the nature of behaviour giving rise to the understatement, and the extent of the disclosure by taxpayer. Penalties may be suspended.
Provision will also be made to extend and adapt this penalty regime to cover failures to register or notify HMRC of any new taxable activity for any of the taxes, levies or duties it administers, including late VAT registration.
Penalties for incorrect returns will be calculated using the established method, which takes into account the amount understated and the extent of the disclosure. Honest mistakes will go unpunished but there will be a penalty of up to 30% for failure to take reasonable care, 70% for a deliberate understatement, and 100% for a deliberate understatement with concealment.
If a taxpayer takes active steps to put right the problem, this will be taken into account. For an unprompted disclosure of a failure to take reasonable care the penalty could be reduced to nil.
Significantly for agents, if the return is wrong because of information wrongly supplied or withheld by a third party, the measure will allow the penalty to be charged to that third party.
For failure to notify a taxable activity there will be no penalty unless there is tax and/or NICs due, nor where the taxpayer has a reasonable excuse. Again penalties will be based on 30% of unpaid tax for non-deliberate failure to notify, 70% for deliberate failure, and 100% for deliberate failure with concealment.
Compliance checks
The Finance Bill 2008 will include new powers designed to align and modernise HMRC’s access to records an information. The new package will introduce:
- A power to inspect records required under the record-keeping legislation, restricting VAT and PAYE inspections to statutory records but introducing a new power of inspection for direct tax.
- A power to require supplementary information relevant to establishing the correct tax position (thereby delimiting VAT and PAYE inspections from statutory records at the same time as it restricts them, one assumes).
- A power to require third parties to provide information relevant to establishing the correct tax position.
- A power to visit business premises and to inspect records and assets.
- Removal of VAT and PAYE powers to undertake inspections at private homes without taxpayer consent…
- …but penalties can be levied for failure to allow an inspection and failing to comply with an information notice, including a tax-geared penalty.
- An updated criminal offence of destroying or concealing records requested under a notice authorised by a tribunal.
The normal assessment time limits by which the amount of tax due can be changed will (generally speaking) be reduced, severely so in most cases of failure to take reasonable care.
New recovery powers
HMRC is to gain new powers to pursue tax dodgers through the courts, under new measures introduced in the 2008 Budget.
Previous powers of enforcement, inherited from the Inland Revenue and HM Customs and Excise, were different across the two regimes, leading to confusion for taxpayers and unnecessary cost to the Exchequer.
The new power to take control of goods or by action through the civil courts will allow debts to be recovered in a single action. Currently through the inherited system taxpayers can face two sets of costs and fees from recovery.
From autumn 2008 HMRC also plans to make it easier for tax payers to settle their debts by introducing a new credit card payment service.
Customs
Customs officers are to be granted powers to search goods for import or export, should they deem it necessary. The measure is designed to clarify HMRC’s powers to search containers and baggage. Previously officers had the power only to insist that the proprietor of the container do the unpacking.
Appeals process simplified
The way in which tax appeal tribunals to HMRC are handled is to be shaken up under the Tribunals, Courts and Enforcement Act, which simplifies this into a two tier tribunal system. Most tribunal appeals will be heard under the first tier, with appeals against these decisions heard by the second tier.
Budget 2008 coverage sponsored by
AccountingWEB.co.uk 12-Mar-2008
Categories: Budget News, Tax Features
Times read: 3316
The Government (and their supine mass media) always describe their demands and changes as "modernisation", particularly when these changes affect public services such as the fire brigade.
Not surprised that HMRC describe this increase in legal powers as “modernisation”, as if it is an improvement!
Most of these powers were already in the hands of HMRC, they just couldn’t justify them or chose not to use them. Some interesting HRA Article 8 points are bound to arise on the info gathering, or should I say information ordering.
These powers for SA investigations can be turned to the advantage of the client. My view is still that the accountant should take the enquiry “by the horns”, be very sure of the facts and plan it out, push the enquiry along on a sensible and legal basis, any delay should be checked quickly, always put the emphasis on the Officer to act promptly and properly. If the Officer really wishes to play games then consider letting him waste his own time and if possible, ultimately let the Officer hang himself/undermine HMRC’s case. Let HMRC know that you are prepared, if they don’t co-operate with you in winding up a legitimate/correct enquiry, to go for closure.
Deeply concerned about the Tribunals system. If the first tier is run by what are basically non-professional/untrained GC’s then the result will be costly and a disaster.
