HMRC have published the outcome of their call for evidence ‘The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards’. This explored wide-ranging possibilities for reform, and further consultation will now follow.
The call for evidence received 42 written responses, arranged under three distinct headings and identifying 22 potential areas for reform.
Enquiry and assessment powers
- Around half of respondents supported the idea of a single set of enquiry and Assessment powers.
- Concerns were raised that a ‘one size fits all’ approach would not be appropriate in all cases
- Several respondents cited areas of the tax system that would continue to need specific powers, such as transfer pricing, Research and development reliefs, claims outside of returns and Partnerships.
- Some respondents believed consequential claim provisions should be broadened and taxpayers should be able to make claims, elections and amendments in their favour.
- A majority did not support HMRC's introduction of a consequential amendment power across periods and tax regimes, not least due to the perception that HMRC would be effectively given a time-unlimited amendment power.
- Many respondents noted there was an opportunity to strengthen certainty for conditions for assessment.
- Several respondents believed there was significant subjectivity which could be addressed concerning the disclosures required by the hypothetical officer.
- Respondents acknowledged the need for HMRC to effectively identify and tackle those who sought to bend or break the rules, but nearly half expressed concerns that additional checks or requirements could increase delays in payments and repayments being made to taxpayers.
- Most respondents supported a greater use of digital communications to improve the speed of communications between HMRC, taxpayers, and agents.
Penalties
- A majority were supportive of applying common Penalties across tax regimes.
- Most support was given to the alignment of penalties for Late filing and Late payment.
- The alignment of penalties for Failure to notify and Inaccuracies were also popular suggestions.
- Some believed that simplifying Offshore penalties should be a priority, due to their perceived complexity.
- A number of respondents suggested simplifying the different categories of Behaviour.
- Many were in favour of retaining behavioural penalties but improving the current model.
- Several respondents felt that the current application of suspension of penalties could be inconsistent.
- Suspension conditions took time to agree, and taxpayers were often unclear on what the suspension was trying to achieve and how to meet the conditions.
- Many respondents endorsed the principle of making fixed penalties more proportional to a taxpayer’s income, resources, or tax liability.
- There was general support for penalty escalation, but the importance of having adequate taxpayer safeguards in place was emphasised.
- Respondents expressed a desire for HMRC to improve the tone and clarity of its written communications and to be more sympathetic to those individuals who found it difficult to process information from HMRC.
- Many respondents highlighted the drawbacks of automatic uprating of penalties and encouraged HMRC to consider the broader context.
- Personal allowances, tax reliefs, and thresholds have not been routinely uprated for inflation. Uprating penalties alone could be seen as unfair and undermine trust.
Safeguards
- Most respondents supported aligning appeals processes, favouring the current approach used in direct taxes.
- Some respondents believed a Statutory review offer should be made compulsory after a ‘view of the matter’ was given by HMRC and taxpayers be given 30 days to accept the offer.
- A majority were in favour of aligning payment requirements across regimes where liability is disputed and a tribunal appeal is made.
- Many respondents favoured an alignment with the direct taxes approach, where no payment is required before the conclusion of the appeal.
- Almost all responses supported the goal of improving access to statutory reviews and Alternative Dispute Resolution but many emphasised this would require a corresponding increase in HMRC staff and training.
- Many respondents supported the idea of mandating statutory reviews on the basis that it could increase take-up and help to support a more consistent and fairer approach to disputes
- It was cautioned it would not be appropriate in all cases and taxpayers should maintain the ability to opt out.
- The need for HMRC to have appropriately trained staff to deal with additional statutory review cases was highlighted.
- Almost all respondents opposed withdrawing the option of statutory reviews in certain cases.
- Respondents emphasised that statutory reviews served as a fundamental taxpayer safeguard to ensure HMRC decisions were robust and grounded in fact, before escalation to more formal and potentially contentious appeal processes.
- Most respondents were positive about the potential benefits of digital appeal services.
Government response and next steps
Enquiry and assessment powers
- No specific proposals for reform will be made in respect of:
- Creating a single set of enquiry and assessment powers across tax regimes.
- More closely aligning the key provisions enquiry and assessment powers.
Penalties
- HMRC will continue to:
- Explore greater use of digital methods of communications in respect of penalties as part of existing initiatives such as the Single Customer Account.
- Invest in compliance caseworker learning and capability to ensure processes, guidance, and controls are applied effectively and consistently.
- New penalties have been introduced for VAT, and new penalties for Income Tax Self-Assessment will follow. The government intends to continue modernising late filing penalties via this ongoing programme of work.
Safeguards
- An alignment of the appeals processes to follow a specific model (direct or indirect tax) could bring significant benefits but carries considerable challenges.
- HMRC will continue to explore the options for reform, considering alternative approaches used elsewhere to better understand best practices and where improvements could be made.
- The government acknowledges strong concerns about the risk of withdrawing statutory reviews in certain circumstances and has no current plans to explore this proposal further.
The government will build on the feedback to the call for evidence and consult on:
- Options for new approaches to tackle high volumes of low-value non-compliance, including a model to offer taxpayers an opportunity to quickly resolve potential errors identified by HMRC and self-correct their returns.
- Behavioural penalties, including how the concepts of penalty alignment, simplification and escalation can be applied to existing ‘inaccuracy’ and ‘failure to notify’ penalties. The future use of penalty suspension will be looked at as part of this.
- Ways to improve access to alternative dispute resolution and statutory review to help resolve disputes before they reach the tribunal.
Useful guides on this topic
Call for evidence: HMRC’s enquiry and assessment powers
HMRC have launched a new call for evidence ‘The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards’. This explores wide-ranging possibilities for reform, with an emphasis on simplification and modernisation.
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?
Statutory Review (by HMRC)
What is a Statutory Review? When does HMRC offer a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? When does HMRC offer a Statutory Review?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?
External link
HMRC Call for evidence outcome: The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards - summary of responses
