HMRC has powers to ensure everyone “pays their fair share of taxes” and in some cases, particularly where the powers tackle fraud, evasion and complex tax avoidance, these powers can be far-reaching. It is important for maintaining and enhancing public trust for HMRC to show that these powers are exercised consistently and proportionately and that taxpayers are able to access the safeguards provided to dispute decisions or complain about their treatment.
A Powers and Safeguards work programme was established by the Financial Secretary to the Treasury in July 2019 which included a review of the implementation and operation of HMRC’s powers and obligations introduced since 2012 (a previous powers review looked at the period 2005-2012). The evaluation report was published on 4 February.
The evaluation does not consider the underlying policies of the powers and obligations, although a number of the external representatives involved in the review forum would have preferred this. So anyone looking for a recommendation that particular powers or obligations should be abolished will not find it here! The evaluation does, however, list a number of commitments by HMRC to make improvements to build confidence and trust in the administration of the tax system.
Out of 40 legal reforms identified as being in scope, 10 powers were prioritised for study by the review forum. These include Accelerated Payment Notices, Follower Notices, the GAAR, the framework underpinning the Diverted Profits Tax, and the obligation on multinational enterprises to publish their tax strategies. To address the results of the evaluation, HMRC will take forward 21 commitments that are aligned with its strategy to promote compliance, prevent non-compliance and respond proportionately and even-handedly to non-compliance. Many of these commitments relate to improving communication by HMRC, including by way of more user-friendly and up-to-date guidance, and raising taxpayer awareness in certain areas, including the statutory review process and internal governance processes.
Reliance on guidance
In response to a recommendation in 2018 from the Office for Tax Simplification, HMRC are carrying out a consultation on the circumstances in which a taxpayer can rely on published guidance and the extent to which a taxpayer will be subject to interest, penalties and the tax in dispute where guidance is found to be unclear or incorrect. This will be an interesting area to follow as case law shows it raises rather tricky public law issues around the question whether government bodies are able to bind themselves to act outside their powers or unlawfully.
Maintaining standards of HMRC’s behaviour
An updated Charter was published on 5 November 2020 following a public consultation. It sets out clear expectations of how HMRC should behave when interacting with taxpayers, including using its powers correctly and fairly. One of HMRC’s 21 commitments is to ensure that HMRC’s officers have the resources, skills and capabilities to deliver the standards set out in the Charter.
Publication of tax strategy
HMRC will clarify the scope of multinational enterprises’ obligation to publish their tax strategy. Stakeholders had given HMRC positive feedback with respect to the implementation of the measure but suggested that guidance could be further clarified to help identify who is in scope, and their compliance obligations. HMRC will consult with businesses and consider how best to provide clarity and ensure that the obligation to publish a tax strategy aligns with the policy intent.
Further work on powers and safeguards
The evaluation focuses on the importance of building and developing public trust in the administration of the tax system over the longer term. HMRC is also considering what further work on powers and safeguards should be taken forward as part of the review of the tax administration framework announced in July 2020 to create a resilient and efficient tax system fit for the 21st century.
“Overall, the work being taken forward to deliver these commitments will help ensure that, where compliance activity is necessary, taxpayers are consistently treated fairly, professionally and with respect, taking into account their individual circumstances and needs. HMRC will help taxpayers understand how and why decisions are made, as well as their rights and obligations.”