Lords report highlights Institute concerns over HMRC powers safeguards

21 Dec 2020

The Chartered Institute of Taxation (CIOT) has welcomed a House of Lords report which encourages the Government to take tough action against a remaining 'hard core' of promoters of tax avoidance schemes, while ensuring new powers are carefully targeted and do not impact on mainstream advisers.

The recommendation is among those in a report from the House of Lords Economic Affairs Committee Finance Bill Sub-Committee, published on Saturday 19 December. The report also draws on CIOT evidence in a number of other areas, including reducing the demand for tax avoidance schemes and the challenges of identifying an ‘uncertain tax treatment’, in making its recommendations.

The CIOT’s Low Incomes Tax Reform Group is also cited extensively in the report, including in relation to those on low incomes who get caught up in disguised remuneration schemes, how standards can be improved in the ‘worker supply chain’, and the removal of the need for tribunal agreement before HMRC can require a financial institution to provide information about a taxpayer.

Promoters of tax avoidance schemes

Commenting on the Committee’s recommendations in relation to promoters of tax avoidance schemes (POTAS), CIOT Head of Technical Richard Wild (who appeared as a witness before the Committee) said:

“The Committee is right to back the Government’s strategy of tough action against those who devise, promote and sell tax avoidance schemes. They are also right to highlight the need for such action to be proportionate, carefully targeted and accompanied by safeguards.

“In our written evidence to the Lords inquiry we identified two particular concerns in relation to the proposed measures: the lack of a right of appeal against the new information notice, and the inclusion of ‘DAC 6’ (the new cross-EU tax disclosure regime) within the definition of ‘defeated arrangements’ in the POTAS regime, when HMRC had provided assurances that DAC6 compliance would not creep into other regimes. The Committee endorses both of these concerns in its report, recommending that HMRC ‘revisits the triggers for POTAS to minimise the risk of these rules affecting bona fide professional advisers’, in particular in relation to DAC6, and reiterating its 2018 recommendation that new powers for HMRC should be accompanied by a right of appeal.”

LITRG Technical Officer Tom Henderson (who also gave evidence to the Committee) said:

“The Committee has picked up on our concern, expressed in evidence to the inquiry, that avoidance schemes based around loans, driven by employers trying to save PAYE and employers’ national insurance, are continuing to proliferate at the low income end of the market. The Committee are right to urge the Government to ‘prioritise action against such employers’ as well as acting more generally, using all the tools it has at its disposal, to close such schemes down and protect low income taxpayers from getting caught up in them.” 

Civil information powers

The Committee also looked into the proposed new power for HMRC to issue Financial Institution Notices requiring financial institutions to provide information about a specific taxpayer to HMRC when requested, without seeking the agreement of the taxpayer or the approval of the tax tribunal. The report states that that the Committee is ‘very concerned about the removal of important taxpayer safeguards for information requests, particularly the need to request permission from the tax tribunal’.

Tom Henderson of LITRG commented:

“These new provisions remove two important safeguards: tribunal approval and right of appeal. We were not persuaded this was justified, and the Committee, after questioning HMRC and financial institutions, as well as ourselves and other tax professionals, are not persuaded either.

“We hope ministers and HMRC will give serious consideration to the Committee’s call for the requirement for tribunal approval to remain, and for financial institutions to have a right of appeal against any request they consider unduly onerous, as well as how the process for information requests – especially international ones – can be streamlined without removing safeguards.”

Tax policy process in relation to HMRC powers

The Committee expresses a number of concerns in relation to the process for agreeing extensions to HMRC’s powers. It identifies ‘a pattern of new HMRC powers being disproportionate, poorly targeted and without sufficient safeguard’.

CIOT’s Richard Wild commented:

“The Committee is right to draw attention to the occasions when the Government has failed to consult fully or provide rigorous evidence before proposing extensions of HMRC’s powers. Its call for the Government to adopt a standard practice of providing detailed analysis to justify any new proposal conferring new or extended powers on HMRC deserves to be heeded.”

LITRG’s Tom Henderson added:

“LITRG and others told the Committee that we frequently feel that HMRC ask for new powers while not making full use of those they already have. When proposing new or extended powers for HMRC, the Government should take up the Committee’s recommendation that it specifically explain why existing powers are insufficient to achieve the policy objective.”