The recent publication by the Institute for Fiscal Studies of a report on the implications of recent additions to HMRC powers and the shifting balance in the relationship with taxpayers got me thinking.
There was a time when people who paid tax were called, well, taxpayers. But for many years now HMRC has insisted on describing us as customers. From that point of view, it’s good to see the IFS calling taxpayers ‘taxpayers’.
As taxpayers, we all want HMRC to be efficient, effective and civil in the way the correct amount of tax is calculated and the tax due is paid. Unfortunately, as we are all customers now, it is disturbing to see how far HMRC is prepared to go to make more demands on its customers.
Mention of customer expectations reminds me that Napoleon famously described the British as a nation of shopkeepers. So perhaps that ubiquitous item, canned goods, is an appropriate metaphor.
Tax measures, especially those launched to tackle evasion or avoidance, have a tendency to expand their scope into other areas. They do more than it says on the can. When Chancellor of the Exchequer George Osborne launched the diverted profits tax, explicitly aimed at multinational digital businesses, in his March 2015 Budget he chose to label it the ‘Google tax’. That seemed to define its scope quite neatly. Imagine then the alarm of companies such as Diageo who have little to do with the digital economy but who suddenly find themselves facing massive tax charges under the DPT regime.
Then there are those tax changes where the contents of the can bear no resemblance to the label. The same March 2015 Budget promised the death of the annual tax return for individual taxpayers. Somewhere along the way, that has morphed into Making Tax Digital which will require four quarterly updates, and perhaps tax payments too, from all small businesses and many other taxpayers, with a fifth annual round-up statement and payment as well.
When it comes to taxes, you can’t always rely on what’s written on the can.
The IFS seems to feel the same about additional powers granted to HMRC over the last three years. These powers have enabled HMRC to seek payment of tax that is disputed by taxpayers prior to its revolution (accelerated payment notices or APNs), to require taxpayers to follow judicial decisions or risk significant penalties if they continue to dispute the amount of tax due, and to extract money from taxpayers’ bank accounts to pay outstanding amounts of tax.
The IFS report recognises that these new powers have a role to play in removing the economic incentive for taxpayers to litigate tax disputes, but are insufficiently focused and have inadequate safeguards. Specifically:
- there is a risk of denying some taxpayers access to justice
- the lack of focus of the new powers means that their scope depends substantially on benign operation by HMRC
- the lack of appeal rights makes other safeguards more important
- while APNs have some safeguards, problems still arise highlighting the lack of appeal rights
- some of the new powers give HMRC quasi-judicial powers and could prevent taxpayers accessing justice
- the penalty powers could act as a brake on improvements to the underlying tax rules
- the new powers contain inappropriate triggers, contributing to the lack of focus on the intended taxpayers. Some taxpayers who should be caught are not, while innocent taxpayers may find themselves treated as serial tax avoiders
- reliance on HMRC’s interpretation of the new powers means that their application can change over time
- the impact on the relationship between HMRC and taxpayers generally depends on the new powers being confined to the intended taxpayer group, and not being allowed to expand. If the new powers are used more widely, such that disproportionate burdens are placed on ordinarily compliant taxpayers, then a sense of unfairness will develop
- the lack of focus of the new powers means that other safeguards in the tax system take on greater importance but are inadequate.
The IFS calls on the government to adopt a three-stage approach.
First, a report by HMRC setting out the circumstances in which all the new powers have been used and the extent to which taxpayers have challenged their use.
Second, a wide-ranging review of HMRC’s powers, deterrents and safeguards in line with the recommendations of the 2015 Treasury Select Committee.
Third, as part of that review, to consider whether there should be new, independent safeguards for taxpayers.
We support those recommendations and urge the government to address in a constructive manner the issues raised by the IFS. It’s in everybody’s interest that these new powers don’t turn into a can of worms.
For more information, please comment below or get in touch with George Bull.