The House of Lords' Economic Affairs Committee has issued its report “The Powers of HMRC: Treating taxpayers fairly” dealing with HMRC powers and taxpayer safeguards.

The conclusion of the report, which runs to 67 pages, is that the increases in HMRC’s powers since 2012, particularly in respect of dealing with tax avoidance are “undermining the rule of law” and that the government’s approach “does not appear to discriminate effectively between the full range of behaviours and circumstances it describes as tax avoidance”.

As a result the Committee recommended a number of actions to be taken by HMRC including:

  • Clearer distinctions are needed in the Government’s approach and rhetoric towards tax 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.
  • The Government should consider widening the role of HMRC's Adjudicator or increasing HMRC obligations to respond to and act on Adjudicator recommendations.
  • Amendments to the Disguised Remuneration (DR) loan charge  legislation to exclude loans made in years where taxpayers disclosed their participation in DR schemes to HMRC or which would otherwise have been “closed”.
  • A fresh dialogue with representatives of tax professionals to consider how offshore tax matters can be managed more effectively, as the proposed time limit extension to 12 years for offshore matters  is unreasonably onerous and disproportionate to the risk.
  • The withdrawal of the proposed extensions to HMRC’s Civil information powers until a full consultation can take place on how new legislation could be better targeted.
  • All HMRC Determinations and notices should be appealable to the tax tribunal, including Accelerated Payments Notices  and the First tier tax tribunal should be able to hear judicial review cases as the current system is prohibitively expensive.
  • A right of appeal, whenever a new power is introduced or an existing power significantly extended, against the exercise of that power and not just against the underlying tax liability.
  • All powers granted to HMRC since the conclusion of the Powers Review in 2012 should be evaluated, and those evaluations published. All future powers should be evaluated after five years. 

The release of this report closely followed a review by the House of Commons Public Accounts Committee (PAC) on HMRC’s performance for 2017/18 in which the PAC highlighted that:

  • Increasing errors and fraud in the tax credit scheme are expected due to HMRC moving this down the priority list following the introduction of Universal credit.
  • HMRC needs to take more responsibility for ensuring that tax reliefs provide value for money.
  • HMRC should work to improve the quality of PAYE administration by some employers and pension providers as this is hindering management of taxes and tax credits.
  • By the start of 2019/20, HMRC should develop and report a scorecard of performance measures providing a broader view of the customer experience including measures of quality and a full view of call waiting time

Links to our guides:

Disguised Remuneration (subscriber guide)
A comprehensive guide to disguised remuneration and the loan charge.

Schedule 36 Information notices (subscriber guide)
A guide to when HMRC can issue an information notice under schedule 36 and how to appeal a notice.

Discovery assessments 
When can HMRC use their discovery powers and what should you do when they issue a discovery assessment?

How to appeal a tax penalty
Step by step guide to ensure that you appeal all the right things.

External links:

House of Lords Committee report: The Powers of HMRC: Treating Taxpayers Fairly

House of Commons committee of public accounts: HMRC’s performance in 2017–18

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