The House of Lords economic affairs committee examined proposals in Finance Bill 2019 which extend HMRC's powers. A full transcript of the evidence given on 17 October can be found here.
In looking at HMRC's powers three principal questions emerged:
- Had there been a power "creep" over the last few years?
- Was HMRC using punitive legislation to make up for inadequate resourcing?
- Had the burden of proof now tipped from HMRC having to prove wrongdoing, to the taxpayer having to prove their innocence?
The allegation of a power creep was made by several witnesses, with suggestions that HMRC had acquired anything from a dozen to a hundred extra powers via anti-avoidance legislation in the last few years.
After the 2005 merger of the Inland Revenue and Customs & Excise departments there was a major formal review of HMRC's powers, but that was over 10 years ago. The point was made that, while Parliament may scrutinise individual measures as they are put forward, no-one looks across the piece to see whether the resulting accretion of powers is proportionate.
The suggestion was also made that, with the introduction of DOTAS and other measures, old-style marketed avoidance schemes have more or less been legislated out of existence, yet the amount of the tax gap attributed to avoidance remains roughly the same.
Over the course of the hearings, a picture was painted for the committee of an HMRC that had been "deskilled". Where formerly one might have dealt with a single inspector with the necessary skills and authority to settle a case, now - it was suggested - one was dealing with a call centre, an inflexible script, and punitive powers exercised if one argued the point.
Lord Turnbull likened the situation to parking fines where you might be charged £100 but allowed to pay £60. He commented: "in this case, we are talking not about a few tens of pounds but about thousands of pounds, so while one might be a bit dodgy in law on parking fines when it gets to that scale it seems to me to be a different question."
Burden of proof
The question of burden of proof was a particular concern in relation to the 2019 loan charge legislation, and to the time limit extension for assessing offshore income and gains.
The committee asked HMRC for more data on loan charge settlements. Judging from the polite letter from chairman Lord Forsyth to Ruth Stanier, HMRC's director of general customer strategy and tax design it seems the Lords were not satisfied with what they were told. On 5 November Stanier provided a further response, which also covers questions concerning MTD.
The data on loan schemes – a "snapshot" taken from the first 5,000 settlements – shows that only a quarter of settlements are with employers, but these bring in 90% of the settlement yield. The committee clearly has concerns about whether individuals are being pursued, rather than the scheme users and developers. I would want to keep an eye on that as more cases are settled, particularly on the 20% of individual cases where the settlement was for more than £30,000.
I feel the Lords committee hearings seemed to skirt around the main issue. HMRC may, as Ruth Stanier said in her letter to the committee, be discussing its powers with its own compliance reform forum and contemplating setting up a “customer experience sub-committee" but what about the rest of us?
This exchange sums it up:
- John Cullinane: “Most of these powers have been voted through by Parliament, in many cases, without opposition.”
- The Chairman: “We are here to discern whether or not they are appropriate. We are expecting you, as practitioners, to tell us what the consequence of that is.”
It is Parliament which passes legislation, and therefore Parliament which scrutinises legislation before it is passed. Surely, therefore, it is incumbent on Parliament to determine whether the powers it has given HMRC are sufficient and being exercised correctly?
The committee's recommendations are contained in a succinct letter to Philip Hammond here. It remains to be seen whether those recommendations influence either the debate on, or the ultimate content of the Finance Act 2019.
About Wendy Bradley
Wendy Bradley is a retired tax inspector, now working as a freelance journalist.