A Lords committee has urged HMRC to urgently review all cases for the controversial loan charge where the only remaining consideration is the individual’s ability to pay, as part of a wide-ranging report into HMRC powers.
Published today, the report from the Economic Affairs Committee entitled ‘The Powers of HMRC: Treating Taxpayers Fairly’ concluded that the powers given to HMRC are “undermining the rule of law and access to justice in the current approach to tackling tax avoidance”, with chairman of the committee Lord Forsyth commenting that new powers given to HMRC by the government “disproportionately affect unrepresented and lower income taxpayers”.
The committee called for HMRC’s powers to be reviewed, increased oversight of the tax department, and recommended widening the remit and authority of the Adjudicator’s Office, with HMRC obliged to follow its recommendations.
Speaking to AccountingWEB ahead of the release of the report Lord Forsyth reserved particular criticism for the 2019 loan charge, which he labelled “unfair” and “pernicious”. He went on to argue that the retrospective nature of the charge was “not acceptable”.
The committee also expressed concern about new measures in the 2019 Finance Bill which would extend HMRC’s powers further, prolonging the time limits for assessing offshore matters and placing an “unreasonable burden” on a disproportionate number of taxpayers.
Balance of power tipped ‘too far’ in favour of HMRC
Commenting on the report Lord Forsyth said that while HMRC was “right to tackle tax evasion and aggressive tax avoidance, a careful balance must be struck between clamping down and treating taxpayers fairly.
“Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect,” he continued.
“We need to work together to build new principles for the tax system, taking a tough approach to tax avoidance while treating taxpayers fairly. We recommend a new review of HMRC powers, and an independent review to consider new oversight arrangements for HMRC.”
Responding to the Lords report a government spokesperson told AccountingWEB: “We’ve taken unprecedented action to crack down on avoidance and evasion, making sure people pay their fair share of tax and securing funding for our vital public services.
“Parliament has given HMRC powers it needs to tackle businesses and individuals who do not pay their fair share, and it uses them responsibly and subject to appropriate checks and balances.”
Initially proposed in the 2016 Budget, the tax charge on certain loans to contractors and employees has attracted a huge amount of comment and controversy, partially due to its retrospective nature which allows HMRC to examine arrangements going back almost 20 years.
Lord Forsyth told AccountingWEB that the committee had been “inundated” with letters about the impact the scheme was having, some of which he labelled “heart-breaking”.
“These schemes were being promoted by agencies saying that the Revenue accepted them and which had QC’s opinions,” said Lord Forsyth. “I don’t think you can expect social, health or IT workers who are not tax experts to understand. If they’re asked by their employer to do something and are told that the Revenue is OK with them then I think it’s understandable why they might have gone along with them.”
Lord Forsyth said until the Rangers case verdict in July 2017 and the introduction of the loan charge the Revenue had been “supine and silent,” about such arrangements, and by their silence gave tacit approval to such schemes.
“We took evidence from the Revenue and asked them why they had not done more to stop these things being promoted,” he said, “and the only thing they were able to say was that they had written to the advertising standards authority. We saw very little evidence that they’d gone after the people who were promoting these schemes.”
The committee recommended that HMRC 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 advice and support to those affected by the loan charge.
Proposed new powers
Looking forward, the committee also expressed misgivings about two new powers in the current Finance Bill that it regarded as ‘disproportionate’.
The first measure triples HMRC’s normal time limits to 12 years for offshore matters. “During the course of the inquiry we discovered that ‘offshore matters’ includes owning shares in a US-quoted company or having a second home aboard,” said Lord Forsyth. “That will net a very large number of taxpayers, who if this goes through are expected to keep records going back 12 years.”
The committee could see no justification in the evidence it received on the offshore time limits, and recommended the government withdraw the Finance Bill clauses 2019 causes (79 and 80).
The other measure under the Lord’s microscope allows HMRC to access information on taxpayer bank accounts without the oversight of a tax tribunal. The committee could not see why this was necessary. Giving evidence HMRC told the committee that having to seek permission from the tax tribunal causes delay, but Lord Forsyth stated this that was a “fundamental right of taxpayers which was being traduced”.
The committee recommended that the government withdraw its proposal to remove oversight of the tax tribunal from HMRC access to information about taxpayers from third parties, for which consultation closed in October.
Don’t hide the Stride
Lord Forsyth made it clear that the committee was not directing its criticism at HMRC, who were carrying out the law, but the government for having provided these powers without the proper balance, which has resulted in gross unfairness to people.
The committee was “particularly outraged” by the refusal of Mel Stride, the minister responsible for HMRC, to appear before the committee, despite being asked on three separate occasions.
When the committee took evidence from HMRC officials about the loan charge, Lord Forsyth said they were “helpful and cooperative”, but made it quite clear that this was something Parliament had executed and was a matter for ministers.
Lord Forsyth said the loan charge legislation was passed without proper scrutiny. “There were three speeches made and it was nodded through,” he commented. “None of the consequences and real hardships caused were properly considered. Since then there’s been an early-day motion through the House of Commons signed by more than 100 people, and we therefore felt that the minister for whom HMRC is accountable ought to have to come to the committee.
“It’s led us to the conclusion that there needs to be a far stronger system of accountability for HMRC and there are recommendations in the report along these lines.”
In the committee’s overall view, it is time to have another look at HMRC’s powers, revisit some of its core principles and establish some kind of independent scrutiny. It made several key recommendations including:
- The government should consider widening the role of HMRC’s Adjudicator, or increasing HMRC obligations to respond to and act on Adjudicator recommendations.
- The government should legislate to give the First-tier Tribunal (Tax) the power to conduct judicial reviews.
- The Treasury should assess whether HMRC is adequately resourced to fulfil its charter obligations in the next spending review.
This was the second of two reports into the draft Finance Bill. The first on progress on the Making Tax Digital programme was published last month.