Tax powers and taxpayer safeguards: Lords quiz Government Minister

Ever since the Parliament Act 1911 which ended the House of Lords’ ability to amend or block fiscal legislation, finance bills and raising taxes have been the exclusive preserve of the House of Commons.

It was therefore something of a break with tradition when, on Tuesday 16 July 2019, the Minister in charge of the tax system, Financial Secretary to the Treasury (FST) Jesse Norman MP, volunteered to answer questions from the House of Lords Economic Affairs Committee on the loan charge, HMRC powers and taxpayer safeguards. For many years, the Economic Affairs Finance Bill Sub-Committee has published reports commenting on aspects of successive Finance Bills, but Jesse Norman’s predecessors have steadfastly refused to appear before them.

What has brought about this change of heart?

On 4 December 2018, the Committee published a report entitled ‘The powers of HMRC: treating taxpayers fairly’ that, while fully supportive of efforts by HMRC to collect tax owed and deter aggressive tax avoidance and deliberate evasion, was critical of a failure to distinguish between different taxpayer behaviours and circumstances involved in such avoidance.

‘There is a clear difference in culpability, for example, between deliberate and contrived tax avoidance by sophisticated, high-income individuals, and uninformed or naive decisions by unrepresented taxpayers.’

A more recent report by the House of Commons Treasury Committee report (22 July 2019 – ‘Disputing tax’) has covered similar ground and reached similar conclusions.

Powers Review

The House of Lords report began with a discussion of the so-called Powers Review, a series of consultations between 2007 and 2012 to decide on what the powers of the new department formed by the merger of the Inland Revenue with Customs and Excise should be, and where the balance should be set with taxpayer safeguards. The resulting powers and safeguards were framed in accordance with a set of principles which are now, their Lordships said, ‘being forgotten in the push to tackle tax avoidance and evasion with fewer HMRC resources’. They cited such recent legislation as the loan charge, the new 12-year time limit for HMRC to investigate all potential tax liabilities with an offshore element, and the proposal to do away with oversight by the tax tribunal when seeking information from third parties.

Announcements on the loan charge

On the loan charge, the FST held out no hope of any change in the law. To the Committee’s challenge that it was unfair to penalise unrepresented individuals for their involuntary participation in schemes that they had been coerced into joining by their employers (of which their Lordships had received evidence), the FST said that the numbers so affected were very small. Out of the 50,000 (approximately) taxpayers affected by the charge, some 3% were in healthcare or education, and though there may be mechanisms for seeking restoration through a political process, that should not be done through the tax system. The law should be the same for all.

Nevertheless, he announced a ‘series of clarifications’ to allay public concern:

  • Guidance would make it clear, in relation to the loan charge, that HMRC would not seek to tax the same income twice.
  • There would be a more collaborative approach to communications with members of the public affected by the loan charge, drawing on expertise provided by the CIOT and the ICAEW. Hitherto, the FST said, HMRC had been offering ‘lots of support’ through their own helpline, meetings with officials, and referrals to the Low Incomes Tax Reform Group, the tax advice charities and other voluntary sector organisations to which HMRC contributes funding.
  • The loan charge would not be applied to a tax year where an inquiry was closed on the basis of fully disclosed information.
  • ‘Additional flexibility’ would be exercised where individuals in genuine hardship were settling under published terms.
  • HMRC would apply its usual practice in situations where a person has no realistic prospect of repaying a tax debt – the Department would stop pursuing them and leave any unpaid debt to be collected later, if and only if their circumstances improved.

An interesting statistic quoted by the Minister suggests that the PAYE regulations are being adhered to, in that under-deductions are recovered from the employer in the first instance, and from the employee only if the employer has gone bankrupt or is ‘otherwise unavailable for being sued’. Of the £1.5 billion so far recovered, 85% has come from employers and 15% from individuals; and HMRC estimates that by the time of final reckoning, 75% will have come from employers and 25% from individuals.

Personal information notices

The FST noted that this controversial legislation had not been included in the L-day clauses because he had told HMRC to rethink it following the criticisms of it in the Committee’s report.

HMRC powers and taxpayer safeguards

The FST also made brief announcements about:

  • working with the Adjudicator to absorb lessons from complaints (as I outlined in an earlier blog, the Adjudicator has been critical of HMRC’s failure to put her feedback to good use),
  • a new professional standards committee to advise the Commissioners on the implementation of powers from an operational standpoint, membership of which will be announced in the Autumn, and
  • an evaluation by HMRC of the powers introduced since the Powers Review, engaging with stakeholders and publishing in early 2020.

In a Parliamentary Written Statement to a wider audience on 22 July 2019, the FST set these announcements in the context of public trust in ‘a healthy and fair tax system’. To maintain such trust, it was important that HMRC ‘is fair, careful and even-handed and adheres to its core values in all its work’, but also has the powers it needs to combat ‘fraud, evasion and complex avoidance’ and exercises them with appropriate oversight, operational checks and balances, and statutory safeguards.

Besides statements covering the three matters (above) raised before the House of Lords Committee, the FST made three further announcements:

  • Strengthening its commitment to taxpayers who need extra support, HMRC will extend its Needs Extra Support service to people who may need additional help to deal with HMRC investigations and help resolve disputes wherever possible without litigation.
  • As part of a programme of greater transparency, HMRC will publish more performance and management information, including on its debt management, registrations and repayment services.
  • HMRC has begun work on reviewing taxpayers’ experiences during compliance enquiries, including the content, language and tone of letters, and will work with stakeholders to develop best practice, identifying improvements in the process and drawing out appropriate common standards and expectations.

For those who help clients through HMRC investigations and debt recovery processes, and are keen to have their say as to how things could be improved, the following months should prove both productive and fascinating to watch.

Robin Williamson

Written by Robin Williamson

Robin Williamson MBE CTA (Fellow) is an author and commentator on tax, welfare and public policy. He was technical director of the CIOT’s Low Incomes Tax Reform Group from 2003 to 2018 and a part-time senior policy adviser at the Office of Tax Simplification from 2018 to 2019. In May 2020 he won the lifetime achievement award at the Tolley Taxation Awards. He was recently appointed UK country reporter to the Observatory on the Protection of Taxpayer Rights at the IBFD.

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