The House of Lords Economic Affairs Finance Bill Sub-Committee held a session with the Tax Minister Jesse Norman on Monday (2 November), as part of its inquiry into draft Finance Bill 2020-2021.
The sub-Committee is focusing on three areas of the Bill:
- New proposals for tackling promoters and enablers of tax avoidance schemes;
- New tax checks on licence renewal applications; and
- Amendments to HMRC’s civil information powers
HMRC powers (incl loan charge)
Lord Bridges of Headley (Conservative) asked why the Government and HMRC are pressing ahead with taking these powers when there is a review underway looking into the powers and safeguards that surround HMRC. Tax Minister Jesse Norman (pictured below thanks to Parliament UK) said we do not need to delay work that is already in progress in order to do that. He told the peers that there will be no further review of the loan charge, saying an evaluation forum of 17 representative bodies recognised that the loan charge had been separately addressed, and very specifically and effectively addressed, by Sir Amyas Morse.
Lord Monks (Labour) asked if it was true that HMRC is using debt collectors to collect loan charge money, and that the agencies that are being used can force the sale of a home? Significant ameliorations have been made to allow people to settle on terms that are financially bearable, said Norman. HMRC use debt collection agencies but ‘really’ for extra capacity on ‘desk-based items’; they do not visit debtors, they do not take enforcement action on HMRC’s behalf and they are not in a position to force the sale of someone’s home to pay a tax debt, he said.
Norman told Lord Forsyth (Conservative) that he did not think that “some of the press and publicity that has been given to the loan charge has been entirely helpful to the people it is seeking to assist, because it has persuaded some people that there is a political campaign that will be successful and that will force Parliament to change this.”
Promoters and tax advice
Why has HMRC not been more successful in stopping promoters promoting disguised remuneration schemes, asked Lord Bridges. Jesse Norman claimed people outside the ‘hard core’ have left the market and the amount of the tax gap that is composed of avoidance has gone down by two-thirds over ‘a period of time’. On the hard core promoters, he said: “These are very determined people who will collapse companies, start them again, reincorporate in foreign jurisdictions and the like in order to avoid scrutiny and being brought to justice.”
Bridges asked if Norman thinks that one should retrospectively go after those who have hugely benefited by mis-selling schemes that now seem to be deemed not correct. Norman said the Government passed recently retrospective legislation to support the new structures of buildings allowance and to permit the temporary increase in annual investment allowance, ‘so there are uses of retrospective legislation that are beneficial to taxpayers’. We have been specifically consulting on whether it would be wise to have a retrospective measure against enablers, and we continue to focus on that, he said. He added that the committee “have already had testimony before you that businesses “operating below the radar” are an exceptionally tough nut to crack, and we are seeking to crack it by every legal and administrative means we can.”
Lib Dem Baroness Kramer challenged the minister on this, noting that ‘File on 4’, with very few resources, had named promoters. Norman said he was in no doubt that HMRC is fully aware of many of these organisations. He was merely repeating evidence another witness (Frank Haskew of ICAEW, though Norman did not name him) had given to the committee. He added that the Government is willing to take action with retrospective effect, ‘if there is scope within a properly consultative approach’.
In response to questioning from Lord Forsyth, Norman was unwilling to comment on whether political parties should accept money from those who run tax avoidance schemes.
Labour’s Viscount Chandos asked if we need to make the provision of tax advice a regulated activity to help bring criminal charges against hard core promoters. Norman was non-committal, calling it a ‘very interesting question’. He said the Treasury is trying to break up the promoters’ activities at all levels and has also launched work to improve standards in the market for tax agents.
Norman told crossbencher Lord Butler of Brockwell that HMRC is already working closely with the Advertising Standards Authority, the Insolvency Service and the Financial Conduct Authority to lessen the opportunities for promoters or other people to cheat the Revenue. He added that even criminal sanctions may have limited deterrence as the process involved is a very slow one (and the threshold for conviction is high). There is no evidence that the HMRC are pursuing a higher threshold in going after the promoters than they are in going after the taxpayers, he said. He told Lord Butler that HMRC are looking at whether penalties can be triggered early enough to be effective.
Lord Forsyth remarked that the committee was quite shocked when it took evidence from HMRC, when peers asked, ‘Why are you not using advertising to make people aware of the dangers of these schemes and the nature of these foul promoters?’, they were told, ‘Well, it might make it look as if this is the norm and might encourage more people to take part in the schemes’. Lord Butler asked why does he not get a notice with his notice of coding, a sort of warning document? “You do a lot of corresponding with taxpayers. Why do you not send something that everybody would see?” Norman backed HMRC’s view. He said he could understand why they might prefer ‘narrowcasting’ to widespread communication on these matters. He added that HMRC is experimenting at very early interventions.
Lord Butler continued to press, asking if it would not be sensible “to issue a warning to people to be careful about the tax advisers they use?” Norman replied that: “Many of the people we are talking about may not think of the scheme they are in as a form of tax advice. Of course, tax advisers by and large, especially those who are members of professional bodies, would very much dissociate themselves from any linkage to this small group of vicious promoters.”
Tribunal approval requirement for approaching financial institutions
Baroness Kramer said it is worth protecting a safeguard like this wherever possible and therefore HMRC should look at other ways in which to shorten the response time rather than turning first to removing the tribunal. Norman replied that the process in which it is embedded is quite a long one, and it can be issued only where it is reasonably required to assess a taxpayer’s tax position. We are talking about a fairly small number of notices, something like 500 a year, he said, adding: “I have no doubt that we would get very rapid feedback from the institutions involved if there was a suggestion that it was not being properly used.” Kramer came back at Norman, saying: “So 480 domestic taxpayers would lose a safeguard in order to meet a test that you feel is necessary for 20 international ones”. There needs to be parity of treatment between domestic and international, said Norman.
Lord Monks remarked that the removal of the need for tribunal approval, the lack of a right of appeal for financial institutions, and the extension of the civil information powers are three new powers for HMRC that damage protections that have been considered important by Parliament in the past. Norman responded that “we are bending over backwards to try to support taxpayers, through improved customer service and improved digitisation of the customer experience, the taxpayer experience, when they deal with HMRC”.
Lord Bridges said it seems an enormous power, “and sledgehammer and nut comes very much to mind.” Norman said that HMRC are under international pressure to bring the standards that the UK adopts into line with those elsewhere.
Uncertain tax treatment
Why are we going down the route of this definition of uncertain tax treatments when it seems that what the Government and HMRC are trying to do is target a minority of large business customers that use aggressive tax planning,” asked Lord Bridges. Jesse Norman explained that the problem is that this is just under £5 billion of the tax gap, on the legal interpretation side, and more than half of that comes from the very largest businesses. This cuts down a potentially huge future tail of litigation, Norman claimed.
Lord Butler referred to the previous week’s evidence from an official that HMRC was going ‘back to the drawing board’ on this. Is it expected to be able to revise the legislation in time for the Finance Bill that we are considering, he asked. Norman said the matter is not settled as yet, including the timeframe for the proposal. He said there may be a need to reflect further with stakeholders or others on the nature of the regulation.
Viscount Chandos suggested it is unfair to introduce these sorts of measures while companies are struggling to deal with COVID-19. Norman replied this is not a measure that he expects to have enormous administrative costs associated with it but the challenge of COVID-19 is another reason for wanting to have as clear and objective a set of tests as HMRC can put in place. But Lord Forsyth finds it extraordinary that we are at this stage in producing a Bill and the policy is not clear. “Therefore, it should be thrown out and you should come back in a year’s time”, he said, which is “what would have happened in the old days”. Norman said sometimes in seeking to pursue an important principle of taxation, more concerns are thrown up when officials and stakeholders get into the details than was originally contemplated, but he has no concerns with this measure. The measure is not driven by lack of HMRC resources, he added.
In a general comment, Norman said: “I certainly hope that one of the things that will come out of the work we are doing on powers and safeguards, professional standards and the other areas that I sketched at the beginning will be improving the quality of tax legislation. As you will be aware, the 2010 government passed into practice a more effective and steady process of passing tax legislation. We are all the beneficiary of it, and we need to make sure that, wherever possible, government pursues that. That is an advantage, but we need to bear down on this more. I absolutely would not, as it were, resile from that obligation.”
Tax checks for licence renewals
Lord Monks asked why HMRC picked private hire taxis and scrap metal dealers – and who is next? Norman said this is an attempt to improve compliance in certain areas where the licensing rules lend themselves to that approach and at the same time to explore whether this approach could properly be extended to other areas that have so far been less visible to HMRC than we would like. It is less likely than many people think that we will see taxi drivers or metal dealers go ‘underground’ because all that HMRC are seeking here is to have a notification, said Norman. He noted that the original consultation had considered other areas, including security, housing in multiple occupation, waste management carriage and retail.
The minister tried to reassure crossbencher Lord Rowe-Beddoe that there will be no mission creep, by confirming that all they will have to show is that they have a Unique Taxpayer Reference (UTR) and assert that they have declared income for taxation purposes. They will not have to say anything about the amount of income they have declared. All they will have to do is say yes or no on whether they have declared some income for tax. HMRC have had extensive consultation on this and would expect to support licensing bodies, local authorities and Transport for London with financial assistance in the event that there are costs, said Norman. It will allow HMRC to start asking whether someone who may not be on their radar screen for taxi revenue possibly should be, too.
Baroness Kramer pleads with HMRC to keeps a very close eye on this, because if people start to leave the system and disappear completely into the black economy, all those safety checks and the huge amount of work that went into making checks pretty much universal will be undermined and lost. There is very great risk associated with that, she added.
Norman suggested that in due course this could link with some of the work HMRC are doing on Making Tax Digital to make such a tax check extremely easy to discharge.
HMRC and COVID-19
The chair, Lord Bridges, closed the session by asking Jesse Norman whether he felt HMRC was doing everything it could to support SMEs and the self-employed at this time. Norman said the Government and HMRC were ‘bending over backwards’ to try to manage the impact of COVID-19, with an “enormous array of reliefs, grants and reductions in rates and the rest of it” as well as deferrals and Time To Pay. He added that “an awful lot of HMRC, which has itself now had to become a very heavily disaggregated organisation, has got into using webchat and other interactive ways of working with people in order to help them and to manage their concerns. We absolutely understand that this is a time when it is more necessary and more important than ever to keep that balance between HMRC and the taxpayer. That is why we are so focused on powers and safeguards, and on cracking down on these promoters and trying to improve the customer experience through digitisation and modernisation.”
The transcript for the session has not yet been published by the committee.