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HMRC powers v. Taxpayers’ safeguards: Let the debate commence. By Nichola Ross Martin

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24th May 2007
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At the tail end of its review of “Powers, deterrents and safeguards”, HMRC has produced a consultation paper called “Safeguards for taxpayers”, which considers what is there in terms of non-tax legislation to protect taxpayer’s rights. This paper does not come up with anything approaching a taxpayer’s charter, or indeed anything similar, but it does manage to bring together some background on the current selection of safeguards that we have in place.

My understanding of it all is that tax legislation should already contain fool proof built in safeguards, and non-tax legislation should be there as an emergency back-up. The trouble is that there is now so much of every type of legislation that it is impossible for any mere mortal (or tax writer) to get to the bottom of it all, let alone, actually draft a decent response to a consultation such as this (I will keep persevering though).

It also seems that HMRC is quite capable of using the non-tax legislation safeguards as an excuse for driving though primary tax legislation which does not contain the safeguarding measures that it might.

Annex 1 of the paper contains a “Summary of Safeguards”, and what a mixed bag they are; as this consultation paper shows, you actually need to be a “safeguards specialist” if not a qualified lawyer to fully appreciate them. Not only that, but new ones are now publicised; most people are aware of the Human Rights Act, the Data Protection Act, and the Freedom of information Act but did anyone realise that HMRC officers are bound by the Civil Service Code? It was introduced in 1996, and was updated in 2006, it sets core values for behaviour within the service of:

  • integrity
  • honesty
  • objectivity
  • impartiality

Full details are contained in Annex 4 which accompanies the paper.

In terms of a safeguard for a taxpayer, the Civil Service Code is going to be rarely if ever any assistance, however, the boot should be on the other foot. Taxpayers and their agents should also watch their behaviour and be civil in their dealings with HMRC.

This latest consultation paper is also by far the worst written in this “Powers” series, it lacks a coherent path, and skips around. Whatever the cause of these drafting problems we need to be extra vigilant when each new piece of tax legislation goes through to ensure that we have proper safeguards worked into our primary legislation in the first place.

So what do we have in terms of taxpayer safeguards, well, firstly (and this is not what this paper is about, but it does discuss them and so I will) we have the primary safeguards; these are ones that are embedded within tax legislation. These include the basic rights of appeal and the ability to claim relief. Central to this is the tribunal system of General and Special commissioners. However, this is soon to be done away with when the Tribunals, Courts and Enforcement Bill (it had its second sitting in the Commons in March) comes in. This bill was the product of a review by Sir Andrew Leggatt in 2001, and it will replace the commissioners with two tiers of tribunals, both headed up by judges. This is to make things more efficient, as Leggatt found that the General Commissioner were far from, and easier for the non-represented taxpayer (I remain sceptical), it will also bring the main tribunals (VAT, direct tax, employment) under one administrative umbrella.

The reason why I mention this is that the Leggatt review was conducted without any knowledge that HMRC was going to review its powers. Worse still for taxpayers, Sir Andrew made his recommendations after attending only one hearing before the General Commissioners and two before the Specials. When the Tribunals, Courts and Enforcement bill finally gets enacted, people could be in for a shock.

Informal dispute resolution
With no general commissioners, where would you go for a quick and cost effective resolution to a dispute? Bearing in mind that the new first-tier tribunal will be headed by a judge and not a fellow business man, it seems dubious that hearings will be as informal as they were before. Consultative workshops held last year flagged up the need for some type of informal resolution service, and this is something on which the consultation seeks views:

What do you think of an informal resolution service? Maybe I should ask that in the negative, as it seems to be a no brainer: Who then thinks it is a bad idea?

In general there are some very mixed messages going around; HMRC is suggesting on one hand (in its compliance consultation) that we need a Code of Practice to safeguard us in the wake of its planned new powers, but on the other it has just taken Code of Practice 1 out of play permanently and replaced it with a short and highly unsatisfactory notice “Complaints and getting things right”. This fails to give vital information such as contact details for HMRC’s adjudicator.

Further, in view of the fact that HMRC is seeking wide ranging and highly invasive new powers some might be surprised to find that under the heading “The Right Amount of Tax” (see Annex 1) we learn that:

“The cultural message across HMRC is collect the right amount of tax, and not the maximum amount, and to ensure that taxpayers receive their entitlements” Try mentioning this to an inspector the next time an enquiry drags on and on!

The “powers review” is on-going, and my criticism has always been that powers need to be in proportionate to the task. You do not need to be armed with a Uzi to inspect a cashbook, and likewise you would not be expected to write in advance to check a suspected smuggler’s lock-up. HMRC’s line appears to be that if you are innocent, you won’t mind the Uzi, and if you do, then you are guilty. This reminds me of the old test for witchcraft; quite a novel idea, if the taxpayer sinks, he is innocent! Anyway, I digress and HMRC does not want to carry guns at all, it just wants to have greater powers of inspection to back up its compliance role, and we too should have greater safeguards so that on the odd occasion when it does all go pear shape you can get the dispute resolved and quickly.

A summary of HMRC’s compliance power proposals (if you have missed them)
It wishes to:

  • Align the rules for VAT, direct tax and NI on the basis that this is for easier for taxpayers to understand them.
  • Align powers of enforcement and compliance across the taxes, for the same reason and to cut costs. This means increasing ex-Inland Revenue powers to be on the same footing as ex-Customs and Excise.
  • Ignore what it says above and instead segregate non-business taxpayers and create new compliance checks for this class of individual (confusing or what?)
  • Create new powers to demand pre-arranged visits to business to inspect records and generally see what ever can be seen for direct tax and NI purposes, have a chat, perform the odd reconciliation to a tax return etc
  • Create new powers to visit businesses without a search warrant to inspect assets and stock (but not the business records) for direct tax and NI purposes
  • Create powers to visit taxpayers who work from home for direct tax and NI purposes
  • Create a superior form of s.19A /s 20(3) notice so that it can obtain documents from third parties without having to be pre-authorised by an Appeal Commissioner.

Conclusion
It is hard to actually see the wood for the trees after having to make sense of these documents. Taxpayers obviously need rights, and a Taxpayers' Charter would surely be the sensible way forward, if only to summarise the basic rights enshrined in non-tax legislation and create a new code of practice for HMRC's service with its customers. An informal dispute resolution services would be a fine step forward too.

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Replies (6)

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By User deleted
25th May 2007 12:57

What a mess
If a full-time professional cannot make sense of the Tax Legislation and HMCE also struggle to make sense of it then how on earth is the average taxpayer supposed to make sense of it all.

It's even worse for the self-employed where there is now several pieces of legislation in force that are vague and without clear legal definitions of who is in and out of the scope of the legislation.

Paying the 'right' amount of tax is all very well in theory but if neither HMCE, courts or taxpayer can conistently interpret the legislation in a way that all agree on then how on earth can anyone establish what the 'right' amount of tax is.

What makes it worse is HMCEs move to automatic penalties and criminal sanctions. It is all very far from a clear and understandable tax system.

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By AnonymousUser
25th May 2007 13:58

Unhappy with the state of affairs?
Then take part in the consultation - draft your own reply if you want or get in touch with whichever professional body represents you and ask them what they are doing about the consultation.

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By P&G
29th May 2007 15:38

Another new series of Big Brother
Just as C4 starts their new series so does HMRC. Yet more powers, as if they do not have enough already, its strange how in Countries where you are guilty until you prove your innocence before a judge and jury of one, our current president, (sorry Prime Minister) would call that person a tyrannical despot. Yet mere Inspectors at HMRC already seem to have the same power, and they still want more!!

Jim Greenwood must be naive if he thinks posting consultation responses will do any good. They've made their minds up already whether we like it or not, and our professional bodies lack the voice to lobby successfully because they are too busy trying to achieve their own agendas rather than looking after their members. After all look how successful "Working Together" is. HMRC officers are not even aware it exists let alone have access to it or follow it.

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By AnonymousUser
29th May 2007 16:55

Don't be defeatist
I am willing to try. Look what happened about the Carter recommendation for filing returns early, look what happened to the question of paper returns, look what happened to the new Taxes Management Act, look what happened to the question of "HMRC thinks". Unless the Bodies had done something HMRC would not have changed their views. HMRC is now listening even if they do not always do what they are asked. After all it is their job to administer the tax system. They cannot always do what I want.

Just two items below to confirm the previous comments.

https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=168544

https://www.accountingweb.co.uk/cgi-bin/item.cgi?id=166438

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By AnonymousUser
29th May 2007 17:02

Powers of HMRC
I notice with interest the powers attempting to be imposed by HMRC. It is worrying if every Taxpayer has to be interviewed without prior consultation. I don't know about the rest of the UK but in Southern Scotland the trend is to cross-examine a Taxpayer for 3 hours and build a case against them - irrespective of any wrongdoing. For instance many questions will relate to private expenditure and cash held - if the total of all expenditure (even if it is from guestimates) exceeds income the Taxpayer will be accused of undeclared income; if the Taxpayer's expenditure is less than the income declared HMRC will accuse the Taxpayer of lying due to not having the cash deposits to balance.

It must remain a Taxpayer's right not to be bullied and intimated into paying money to have a case stopped - which is the current trend in Scotland. Some of the injustices which we are uncovering lately are horrendous to say the least, especially for those working from home, who are highly vulnerable.

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By Nick Graves
30th May 2007 10:18

Never joke about Uzi
A combination of increasingly draconian powers and unnecessarily belligerent attitudes, combined with increasingly farcical incompetence, means that HMRC will need to become armed, in order to restore co-operation from taxpayers at some point.

HMRC seems to be modelling itself on the Russian system. At least the Italian system is far kinder and importantly, less violent.

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