The announcement that the UK’s House of Lords is to examine the ‘exponential growth’ in the powers of HM Revenue and Custom has been welcomed by the tax advisory community.
News that lawyers for an Italian woman with a British bank account are suing HMRC over its use of the automatic exchange of information using general data protection regulation (GDPR) principles, may have tipped the committee into looking at the arsenal of powers the tax office now has at its disposal.
The test case is the culmination of a series of developments which has seen HMRC widely criticised for being unfair and taking liberties with individual rights.
Commenting on the House of Lords Economic Affairs Finance Bill Sub-Committee inquiry, James Quarmby, partner at law firm Stephenson Harwood, told International Adviser: “I’m not sure where the political momentum has come from behind this, but it’s welcome. I have argued for some time now that the pendulum has swung too far in favour of HMRC in the last few years, to the detriment of our citizen’s rights.”
Flashpoints with HMRC
These are some of the new powers the inquiry may look into:
- Automatic Payment Notices – these shift the burden of proof onto the taxpayer and give HMRC an in-built advantage. If a taxpayer doesn’t pay an APN they are faced with a 50% penalty if the ultimate tribunal case is lost. However, HMRC faces no penalty if it loses.
- Follower Notices – these give HMRC the power to decide whether a case is caught by a legal precedent and yet it requires no intervention by the court. In these cases, HMRC both decides the law and collects the tax. It is argued this does not respect the separation of powers between the legislature and the judiciary and undermines individual rights.
- Extension of offshore enquiry period – this is a measure which allows HMRC to go back 12 years for any offshore matter, even when there is no deliberate misbehaviour.
“How are taxpayers supposed to have any certainty about their affairs if HMRC can go back so far?” argued Quarmby.
“Bearing in mind how many of our taxpayers are foreign – and therefore likely to have foreign assets – this is clearly discriminatory and looks very ‘Little Englander’ to me. I wonder also if it offends against the EU principles of non-discrimination? I really hope the committee takes a long hard look at these and other HMRC powers,” he said.
Blurred lines
Speaking to International Adviser, Fiona Fernie of Blick Rothenberg said HMRC had been blurring the lines and the inquiry was well -timed.
“The scope of HMRC’s powers has altered dramatically in recent years and there has been some concern that the powers have not been adequately balanced with safeguards,” she said.
“Whilst there is normally a defence against imposition of swingeing penalties of ‘having taken reasonable care’, in practice it has been apparent that some parts of HMRC are reluctant to accept such a defence.
“In addition, various measures introduced effectively blur the lines between mitigation, avoidance and evasion in terms of the punishment handed out to taxpayers (e.g. the strict liability offence which is a criminal offence despite there being no need for HMRC to prove that there was a “mens rea”(intention) behind the underpayment of tax).
“Whilst it is clearly right that evasion and abusive avoidance arrangements should be stopped, it is important that HMRC do not tar all taxpayers with the same brush and fail to keep to the terms of their charter which undertakes to presume that taxpayers are telling the truth unless they have good reason to think otherwise.
