“Mind the pennies and the pounds will look after themselves” is something my grandmother often said to me in days when pocket money was still dished out in shiny coins!  It seems HMRC has taken heed of this advice, too, in its pursuit of the large proportion of the tax gap that is comprised of small amounts due from a large number of individuals and small companies from mistakes in tax returns as a result of failure to take reasonable care. 

On the face of it, the four proposals in the consultation document on new ways to tackle non-compliance (reform of some existing powers and processes, and a new power to require taxpayers to correct mistakes themselves) might seem unlikely to apply to large corporate taxpayers with more complex issues and larger amounts of tax at stake but this will depend on how targeted the measures will be, and even if the original intention is for them to be more narrowly applied, there is always the risk of mission creep.

Partial enquiry notices

The objective of the consultation is to make it “easier and quicker for taxpayers to put things right, while helping HMRC collect the right tax more effectively and efficiently” and the four proposals are being considered either as a package, or as one or more independent measures. The proposals are not exhaustive, however, and HMRC also invite any other suggestions. 

The most far-reaching proposal, and one which large business would be advised to keep an eye on, is the proposal to enable HMRC to issue a partial enquiry notice on a specific issue or section of a return. This would apply across the board and would not be restricted to high-volume, low-value compliance risk although the consultation document does suggest that (at least initially) partial enquiry notices could be used as short, targeted interventions where taxpayers have claimed relief or are awaiting payment for relatively small amounts. 

A partial enquiry notice would not affect the normal enquiry window and would be subject to “appropriate governance” which the consultation document suggests might include an obligation on HMRC not to re-open any risk that had already been dealt with under a partial enquiry.

The advantage for both taxpayers and HMRC of a partial enquiry would be to save the time and expense of a full enquiry in order to resolve a discrete issue. In principle, this sounds sensible and attractive. Why do more if less would suffice to get to the same result? But if there really is a clearly identified, discrete issue, wouldn’t a full enquiry under the existing power be quick and simple to run too? 

Safeguards for taxpayers

What about the downsides for taxpayers of a partial enquiry power? The consultation document notes the need for appropriate governance and asks: what would be appropriate taxpayer safeguards? There would need to be adequate safeguards to protect the taxpayer from facing a series of partial enquiries, or a partial enquiry followed by a full enquiry which would make the enquiry process more complex and more inefficient from a time and cost perspective. 

For this to work effectively, HMRC teams would need to act in a co-ordinated way to avoid making life more complicated for taxpayers having to manage multiple separate enquiries (with different timings) into the same tax return. Perhaps HMRC should be obliged to confirm, at the time of a partial enquiry, that they are not aware of any other lines of enquiry (for instance, from other HMRC teams) and that there are no factors that would indicate HMRC intend to use the full enquiry power on the same tax return. Obviously, HMRC will want to reserve the right to raise a partial or a full enquiry at a later stage if a different issue came to light but, if they are already aware of any other issues that need to be resolved, this would suggest a partial enquiry is not the most efficient route to take. If there were an obligation on HMRC not to re-open any risk already dealt with under a partial enquiry, taxpayers and HMRC may take different views on which issues/risks have already been dealt with which could lead to more disputes about procedural issues.

If the taxpayer considers a partial enquiry is not the appropriate route (for example, because HMRC have already flagged another issue or there has already been a partial enquiry into a different point and the piecemeal nature of the process is burdensome for the taxpayer), another safeguard I would suggest is that there should be a right of appeal to the Tribunal to bypass the partial enquiry stage and require a full enquiry to deal with any remaining issues together. 

Limitations

The consultation document also asks what limitations should be attached to the partial enquiry power and why. If this measure is really intended to address small amounts owed by many careless taxpayers, two obvious potential limitations would be: first, that HMRC reasonably suspects failure to take reasonable care in completing the tax return, and second, that the amount of tax at stake is below a certain threshold (which could be set by considering the figures HMRC used for estimating the tax gap). 

The consultation is open for comment until 22 January 2025 and responses should be sent by email to tafrcompliance@hmrc.gov.uk.