Tax community slams retrospective tax law changeby
The tax law will be changed such that certain decisions currently required to be made by an HMRC officer will instead be performed automatically by the HMRC computer. This change will apply retrospectively to all open decisions.
Late on Halloween, HMRC published a dull-looking technical note about automated processes in the tax system. The tax community was alarmed to find that a significant change to the tax rules around issuing notices and penalties will be brought into effect with no prior consultation. What’s more, the new law will be retrospectively and prospectively applied from 31 October 2019.
What’s the issue?
The machinery of the tax system is largely contained in a law which is now nearly 50 years old: the Taxes Management Act 1970 (TMA 1970). This was written before the automation of a large number of HMRC’s functions, such as the issuing of a notice to file a tax return and the issuing of automatic penalties.
Where the imposition of a penalty, say for the late filing of a tax return, is challenged by the taxpayer, some tribunal judges have looked very carefully at the evidence presented by HMRC to the tribunal. If the judge is a pedantic mood, they will ask which HMRC officer made the decision to issue the notice to the taxpayer, as that is what the law requires.
For example, Judge Popperwell in Craig Shaw (TC06547) ruled that in order for the notice to file a tax return (TMA 1970 s 8) to be valid, it must be given to the taxpayer by “an officer of the Board” (meaning HMRC), and he expected the notice to be signed by a named HMRC officer. In that case, and in many other similar cases, HMRC’s evidence consisted of:
- a generic copy of a notice to file letter
- an extract from the HMRC computer records showing when the notice was issued
- a record of the taxpayer’s address at the relevant date (which may be wrong)
The judge is asked to infer from those documents that the notice was sent by an HMRC officer to the taxpayer at the appropriate time and to the correct address. Many judges are refusing to make that inference and are cancelling the disputed penalties.
Technology is driving change
The professional bodies have long been calling for a major review and consolidation of the powers contained in TMA 1970. For example, in evidence to the House of Lords Economic Affairs Finance Bill sub-committee, the CIOT says: “The transition to digital is transforming tax administration and consequently the nature and operation of HMRC’s powers will need to reflect this fundamental change. The last comprehensive powers review took place before this digital transformation was underway.”
The CIOT goes on to say: “A new review is needed to establish the principles that should govern HMRC’s powers in a digital age … but consultation is the best approach to working out the practical implications of such changes.”
The technical note gives no indication that the changes to HMRC powers will be consulted on. It says that legislation will be introduced in the next Finance Bill to “affirm that HMRC’s practice of using automated processes to help fulfil certain functions has a firm legal footing.”
In other words, HMRC is now asking Parliament to change the law so as to legitimise their conduct in issuing notices automatically by a computer without the actions of a real HMRC officer.
Barrister Keith Gordon commented: “Several cases are being litigated which turn on HMRC being required to comply with their own legislation and not merely with some approximation of the statute. One example concerns the need for certain actions to be taken by ‘an officer’ yet HMRC think that a computer will do.”
The technical note states: “This is not a new policy and nothing will change for taxpayers.” However, this is not true for taxpayers in the middle of a dispute with HMRC over the automatic issue of a notice or penalty. If the taxpayer had not received a settled judgment on the matter before 31 October 2019, they will be subject to the new legislation – which is yet to be published and does not have a date of publication.
As Keith Gordon points out, this proposal undermines cases which are already queued up in the court system. For example, next month the upper tribunal is due to hear HMRC's appeals against the decisions in Craig Shaw (TC06547) and Nigel Rogers ( TC06542). There are also many unnamed cases in the FTT that HMRC sought to have stayed pending the UT's decisions in those cases.
Gordon notes: “HMRC is proposing to extend this retrospective treatment to all taxpayers who are in the middle of litigation on this very point, thereby rendering any such litigation wholly redundant and irrespective of what the judge was going to say.”
No adverse impacts
The technical note also claims: “There will be no adverse impacts on taxpayers”. This is also questionable, as Ray McCann, past president of the CIOT, notes: “It will undermine decisions of the tribunal that make clear that a human should give some thought before causing problems to another.”
George Bull, senior tax partner of RSM, commented: “This has been a long-running issue. I am disappointed to see an announcement scrape through just before this Parliament ends.”