It is not often that amendments to the annual Finance Bill make headline news, and rarer still that they are forced on the Government by cross-party groups of MPs. In the past week, the Bill was amended to prevent the making of certain regulations to smooth the process of EU withdrawal unless Parliament has approved both a framework for the future relationship with the EU, and either a negotiated withdrawal agreement, or leaving the EU without such an agreement.
However, of arguably more immediate interest to tax advisers is New Clause 26, also proposed by a cross-party group of MPs, which requires the Government to review the effects of the changes made by the Bill to the time limits for assessments where offshore matters are concerned, and to report to the House of Commons by 30 March 2019. Those changes substitute a time limit of 12 years for assessing income tax or capital gains tax in cases ‘involving an offshore matter’ or a transfer of assets offshore as a result of which the lost tax becomes ‘significantly harder to find’. (Existing time limits are, of course, four years in an ordinary case, and six years where carelessness is involved. The 20-year time limit in cases of fraud is unaffected by the new rule.)
As part of that review the Government must include ‘a comparison of the time limit on proceedings for the recovery of lost tax that involves an offshore matter with other time limits on proceedings for the recovery of lost tax, including, but not limited to, those provided for by Schedules 11 and 12 to the Finance (No. 2) Act 2017’. Those two schedules contain provisions about the disguised remuneration rules on employment or trading income provided by way of third party loans: the so-called ‘loan charge’ about which I have previously written on this blog.
Finally, the new clause requires the review to ‘consider the extent to which provisions equivalent to Section 36A(7)(b) of TMA 1970 (relating to reasonable expectations) apply to the application of other time limits’. Section 36A(7)(b), introduced by the Bill, will prohibit HMRC from making an assessment under the new provision if ‘it was reasonable to expect’ the assessment to be made before the normal time limit of four or six years, and HMRC already had the information available to make the assessment within that time.
It will be interesting to see how effective a review can be of a provision that will have been in operation for less than three months. However, clearly the new offshore time-limit is causing widespread concern. In their report on the Finance Bill, a House of Lords committee has condemned the new time-limit as ‘unreasonably onerous and disproportionate to the risk’. Their Lordships said: ‘It is wrong if, rather than funding HMRC sufficiently to conduct offshore enquiries in a timely manner, the Government is placing disproportionate burdens on taxpayers and eroding important taxpayer safeguards’, and observed that there was ‘deep and consistent opposition’ from the witnesses to their inquiry. By accepting the clause, the Government presumably wished to show it was in listening mode.
Nevertheless, it seems now inevitable that the measure will pass into law, applying to liabilities arising in years from 2015/16 in ordinary cases, and 2013/14 in cases involving carelessness. It has been suggested that the forthcoming review might lead to changes to the loan charge – but this seems unlikely, unless the Government is prepared to countenance some kind of reasonable expectation exclusion such as Section 36A(7)(b) above: something that would prevent HMRC from taking action under the loan charge if it, or its predecessor (the Inland Revenue) had the opportunity to challenge an arrangement in a timely fashion, but simply missed it. In such circumstances, arguably the taxpayer could justifiably have thought that silence implied consent on the part of the authority, and for HMRC to take action long after normal time limits for discovery had elapsed might even constitute conspicuous unfairness.
Robin Williamson MBE CTA (Fellow) is an author and commentator on tax, welfare and public policy, and a part-time senior policy adviser at the Office of Tax Simplification. He was technical director of the CIOT’s Low Incomes Tax Reform Group from 2003 to 2018.