The former head of the UK tax authority was one of the speakers at the latest CIOT/IFS Debate, on the topic of the powers of HMRC and the responsibility of citizens in today's world.
The debate took place on 25 February 2019 at The British Academy in St. James', central London.
The panel consisted of Sir Edward Troup, Former HMRC Executive Chair, Malcolm Gammie QC and Chair of the IFS Tax Law Review Committee, and Ray McCann, CIOT President (in the chair). Nicky Morgan MP, Chair of the House of Commons Treasury Committee, had been due to speak, but delayed parliamentary votes kept her in Parliament. Kelly Sizer, Senior Technical Manager for the CIOT’s Low Incomes Tax Reform Group, was also due to take part, but had to pull out due to illness.
Sir Edward Troup
In his speech, Sir Edward said HMRC’s powers should not be exercised in a way that is excessively burdensome, intrusive or unfair – with the trust that taxpayers have in the tax authority the important test; this can partly be achieved by having an adequate redress for taxpayers, he suggested.
The size of the UK ‘Tax Gap’ (more than £30 billion) suggests HMRC does not have enough powers, Sir Edward said, although he accepted that this was a simplistic view. The Revenue’s powers need to be able to keep the Tax Gap at a reasonable level, he argued. There must be clarity about what responsibilities the taxman and taxpayer have and oversight that is sufficient, he added.
Sir Edward said that, over the past 200 years, tax collection has moved from enforcement – ‘bashing down the door or boarding the ship’ - to a compliance culture where the expectation is that taxpayers will comply. But HMRC’s powers still reflect an era of enforcement rather than a culture of compliance, he stated.
He added that the computation of tax liability has moved from easily determined numerical facts to more complex numerical and non-numerical questions which are not determined by knocking down the door and counting anything; often HMRC require subjective information. HMRC’s powers need to reflect this change but he said this has not been adequately addressed.
Often a taxpayers’ details are stored by third parties digitally, and not by the taxpayer. From a tax administration perspective there are great opportunities for HMRC. But the powers for getting third party information and the use of third party information is lagging. A lot of the limitation and extent of HMRC’s powers are predicated on the sense of the ‘threshold of the home’. But the concept of private information raises the question of what counts as private information today.
He suggested there had been an erosion of the sense of personal responsibility for one’s tax affairs.
Sir Edward concluded by saying that HMRC sometimes shows discretion but there needs to be more transparency about how discretion is used.
Finally, he said that within TIINs (Tax Information and Impact Notes) there should be a statement about the way HMRC will apply a new power and the nature of the taxpayers to whom it will apply. He was thinking specifically of the row about the Loan Charge, where he says part of the problem is not that it is not doing what was intended, but what was not understood was the nature of the individuals and the mindset of the individuals against whom it was addressed. That might have been addressed and more awareness of that, if the TIIN had put a bit more in about what HMRC knew about the taxpayers and how it was going to address them.
Malcolm Gammie QC
Malcolm Gammie said the Revenue has a degree of responsibility, just as taxpayers do. He listed the growth in HMRC’s discretionary powers. This is adding uncertainty around the edges of the tax system, he argued. The QC acted for the Revenue in the Eclipse 35 case and one of the recent follower notice (FN) cases has seen the Revenue saying that Eclipse 35 means they can issue a FN for a point that was never argued in Eclipse 35 ‘which you might think was not quite the objective of the FN legislation’, he said.
On accelerated payment notices (APNs), Mr Gammie said the Revenue has an obligation to ‘get a move on’ with these cases where HMRC is withholding the tax. The increased use of penalties and changing the burden of proof concerns him. He got the sense that HMRC’s attitude is ‘that if you happen to disagree with their view of the law you must have been negligent or guilty of unreasonable behaviour of some sort and therefore they need to ask you if you are liable for penalty or suggest you are liable for a penalty’. He also said time limits are becoming an issue, not least the trouble for taxpayers to bring evidence from many years back.
The QC bemoaned that you cannot trust Parliament to limit HMRC’s powers, ‘they will give them anything they ask for’ and that once HMRC is given new powers they are unlikely to be withdrawn or restricted.
During a Q&A session, the Head of Tax Strategy at HMRC said HMRC powers is a ‘hot issue’ and the more the debate can be pitched as the things that the public need in order to have confidence in HMRC, the better.
Sir Edward told Paul Johnson, Director of the IFS, that tax has to be collected under the letter of the law but the diversity of humanity leads to a one size fits all approach to tax administration that has been ‘painful’ in many cases.
Sir Edward agreed with Malcolm Gammie that legislation powers must not be excessively focused on one part of the population and better external scrutiny will help. Mr Gammie said oversight as to how HMRC is running is a key element that we have not got right in the UK. Sir Edward said that HMRC’s ethos was not about maximising tax.
Nicky Morgan MP
Rt.Hon. Nicky Morgan MP, Chair of the House of Commons Treasury Committee was detained in Parliament by delayed votes on Brexit legislation. In remarks later published on the CIOT website (here) she set out what she had planned to say at the event.
The MP wrote of the need for a wider conversation about the existence of a broader responsibility across society and a wider civic duty to help keep the UK’s tax base stable and secure.
In the current controversy over the loan charge it is hard to find anyone who comes out of it terribly well, she said.
She set a ‘gentle challenge’ to the profession to consider whether, in setting that ethos and communicating it to their own members, is there scope for communicating it more effectively to the wider public too?
She also wrote that the Low Incomes Tax Reform Group (LITRG) has recently given the Committee evidence that has prompted HMRC to review the way it deals with vulnerable and unrepresented customers involved in tax disputes.
Had Kelly Sizer been able to take part in the debate, rather than being struck down by the flu, she would have spoken of her concerns that the ever-increasing automation through digital systems by HMRC creates a further disconnect with the public (more here).
She wrote that powers are proportionate and effective if they are geared to the situation of the taxpayer and tax at stake.
In a digital tax system, HMRC therefore need to ensure that their approach to reasonable excuse and reasonable care caters for situations in which taxpayers have relied on someone else in a bid to comply but where unfortunately something has gone wrong.