The Chartered Institute of Taxation (CIOT) and Institute of Fiscal Studies (IFS) held a debate this week; HMRC’s powers - Going Too Far? With new and wide ranging powers to demand accelerated payment of tax already included in this years’ Finance Bill, there is a feeling that a new consultation on the direct recovery of debts (DRD) takes matters to far. Do we want really want to give HMRC more powers?
Jim Harra - Director General for Business Tax for HMRC led off the debate for the "fors" - "give HMRC more powers" side emphasising that:
- HMRC is “legally accountable” to parliament and that a small minority of cheats require a considerable amount of HMRC’s resources to ensure compliance. HMRC require modern new enforcement powers to ensure minority comply.
- The tools need to do the job change as society change but they should be subject to safeguards and used proportionately.
- Several external bodies scrutinise HMRC including the PAC and NAO the taxpayer also has recourse via appeal to HMRC’s adjudicator, parliamentary ombudsmen, judicial review (noting later that this is "impractical" for most taxpayers), and in some case the tribunal process.
- Above all the direct recovery of debts will be much cheaper for HMRC.
- Sums expected to be recovered by DRD: 17,000 cases of on average £5.8k = £98 million.
James Bullock, Head of the Litigation and Compliance Group, Pinsent Mason responded for the "againsts" - "don't give HMRC more powers".
- Reflecting on the magna carta; any move to enabling legislation without the courts is against constitutional principles.
- The principle of self assessment is that taxpayers, not HMRC self assess and this carries checks and balances.
- New powers such as accelerated payment notices catch those who complied with the relevant law at the regular time - i.e. DOTAS
- DRD gives HMRC a power without independent scrutiny.
- HMRC is planning further new criminal sanctions for those who do not declare overseas bank accounts; a fiscal version of imprisonment without trial as a crown court judge has no tax experience
Jolyon Maugham, Barrister, Devereux Chambers responded for the "fors":
- Whilst many believe that HMRC too chaotic to be trusted with DRD there are lots of reasons to ramp up collection. Some 4.4 billion lost in tax debts for non compliance.
- DRD will come with safeguards. It won’t apply if in dispute or there is time to pay agreement and until fair warning 9 fair warnings have been given. HMRC must leave £5k in the bank account but may be larger if a bigger figure needed for the taxpayer's day to day commitments.
- Consultees have misread para 3.26! Taxpayers will have a right to judicial appeal. This does not mean judicial review.
- Similar powers exist in other countries.
- HMRC may already cease assets and so no Rubicon will be crossed
Philip Baker QC, Grays Inn Tax Chambers responded for the "against":
- There is a balance of proportionality and taxpayers rights. HMRC moves closer and closer to using measures which are disproportionate and these threaten to undermine taxpayer trust and cooperation.
- DRD is the modern equivalent of hanging smugglers as a deterrent: we don't do that, its a power too far.
- HMRC is unable to put forward an adequate argument for DRD other than it saves them time and expense.
- DRD was proposed when HMRC undertook its 2002 to 2008 review of Powers, Deterrents and Safeguards. At that time it said that it had no current plans to take this proposal any further. A fundamentally identical procedure now proposed.
- HMRC just under more pressure and criticism now.
Questions from the floor indicated tax advisers unease:
- Taxaid the charity submitted that in nearly all debt cases it handles HMRC has got its figures wrong.
- Whilst largely volunteers spend time scrutinising legislation, tribunal decisions on recently introduced powers show that HMRC makes mistakes in interpreting new powers legislation.
- Problems are already revealing themselves in the case of third party Schedule 36 FA 2008 notices where the lack of safeguards for the taxpayer provide no right to attend the tribunal or make an appeal.
Two keys issues emerged:
1. Constitutional: do we want to give the state the power to dip into our bank accounts given that they can already hack our phones and computers.
2. Practical: can we trust HMRC with DRD: it is all about cutting costs for an apparently very low amount of tax and abundant evidence of high levels of error in HMRC's calculations.
By co-oincidence, HMRC's error rate appears to be out of current control. Earlier that day: the Times leaked a list of celebrities who used the "Liberty tax scheme": HMRC may potentially demand £1.2 billion under its new accelerated tax payments from scheme users as this scheme was disclosable under DOTAS. Follow up reports show that even though scheme users reported their DOTAS numbers HMRC has failed in a cases worth several million to issue enquiry notices. Meanwhile in the House of Commons, HMRC's Lin Homer had to apologise for a £1.9 billion error in HMRC's preformance reporting.