A report by the Institute for Fiscal Studies (IFS) highlights concerns over HMRC powers.
The IFS has recently published a detailed report examining the way in which certain powers that have been provided to HMRC in recent years to tackle tax avoidance has changed the relationship between HMRC and taxpayers. The report considers, amongst other things, accelerated payment notices (APNs), follower notices, and the general anti-abuse rule (GAAR) procedure, which many tax professionals consider have eroded longstanding and fundamental constitutional safeguards.
The report makes a number of crucial findings:
Whilst these anti-avoidance measures may be effective in achieving their intended aim, there are insufficient safeguards in place for taxpayers and they are capable of being used beyond their originally intended remit. Perhaps of more concern, however, is the conclusion that these measures have the practical effect of denying taxpayers access to justice.
HMRC has requested, and been granted by Parliament, far reaching powers intended to deal with what it described as a ‘recalcitrant few’. The IFS notes, however, that these powers can, and have, been applied in a wider context. The report states: ‘The lack of focus of the new powers means that their scope depends substantially on benign operation by HMRC.’ Not perhaps the most robust safeguard against potential abuse of its powers by HMRC. In particular, the manner in which the disclosure of tax avoidance schemes (DOTAS) regime has been used by HMRC as a gateway to deploying these powers is perhaps the most obvious example of ‘mission creep’.
The report also identifies the lack of appeal rights in relation to many of these powers and raises a number of concerns: ‘Independent judicial scrutiny of particular measures may be of little value if the powers that the measures confer are so broadly cast as to put the matter beyond effective judicial scrutiny and make it solely a matter of administrative discretion as to their application in particular cases.’ The IFS highlighted, in particular, follower notices and GAAR penalties as being of particular concern. The effect of punitive penalties has, the report suggests, effectively granted HMRC ‘quasi-judicial powers to determine what tax law means and how it applies in particular cases’.
The report proposes that:
HMRC publishes a report on the way in which it has utilised its new powers and how it has been challenged;
a wide-ranging review be carried out of these new powers, having regard to whether there are adequate safeguards in place; and
consideration be given to whether a new independent monitor should be introduced.
Many taxpayers will share the concerns raised by the IFS in its report. The report is significant in that it is one of the first independent reports to highlight very real concerns in relation to these new powers which can be utilised by HMRC with little or no independent judicial scrutiny. Given the ongoing strain on public finances, policy makers have been under enormous pressure in recent years to be seen to be clamping down on tax avoidance. While measures intended to reduce what HMRC consider to be unacceptable tax avoidance may attract favourable headlines in certain sections of the media, in the view of the IFS, this has come at a cost in terms of the erosion of the rule of law.
Home >Articles > IFS report on recent additions to HMRC powers
IFS report on recent additions to HMRC powers
A report by the Institute for Fiscal Studies (IFS) highlights concerns over HMRC powers.
The IFS has recently published a detailed report examining the way in which certain powers that have been provided to HMRC in recent years to tackle tax avoidance has changed the relationship between HMRC and taxpayers. The report considers, amongst other things, accelerated payment notices (APNs), follower notices, and the general anti-abuse rule (GAAR) procedure, which many tax professionals consider have eroded longstanding and fundamental constitutional safeguards.
The report makes a number of crucial findings:
Whilst these anti-avoidance measures may be effective in achieving their intended aim, there are insufficient safeguards in place for taxpayers and they are capable of being used beyond their originally intended remit. Perhaps of more concern, however, is the conclusion that these measures have the practical effect of denying taxpayers access to justice.
HMRC has requested, and been granted by Parliament, far reaching powers intended to deal with what it described as a ‘recalcitrant few’. The IFS notes, however, that these powers can, and have, been applied in a wider context. The report states: ‘The lack of focus of the new powers means that their scope depends substantially on benign operation by HMRC.’ Not perhaps the most robust safeguard against potential abuse of its powers by HMRC. In particular, the manner in which the disclosure of tax avoidance schemes (DOTAS) regime has been used by HMRC as a gateway to deploying these powers is perhaps the most obvious example of ‘mission creep’.
The report also identifies the lack of appeal rights in relation to many of these powers and raises a number of concerns: ‘Independent judicial scrutiny of particular measures may be of little value if the powers that the measures confer are so broadly cast as to put the matter beyond effective judicial scrutiny and make it solely a matter of administrative discretion as to their application in particular cases.’ The IFS highlighted, in particular, follower notices and GAAR penalties as being of particular concern. The effect of punitive penalties has, the report suggests, effectively granted HMRC ‘quasi-judicial powers to determine what tax law means and how it applies in particular cases’.
The report proposes that:
HMRC publishes a report on the way in which it has utilised its new powers and how it has been challenged;
a wide-ranging review be carried out of these new powers, having regard to whether there are adequate safeguards in place; and
consideration be given to whether a new independent monitor should be introduced.
Many taxpayers will share the concerns raised by the IFS in its report. The report is significant in that it is one of the first independent reports to highlight very real concerns in relation to these new powers which can be utilised by HMRC with little or no independent judicial scrutiny. Given the ongoing strain on public finances, policy makers have been under enormous pressure in recent years to be seen to be clamping down on tax avoidance. While measures intended to reduce what HMRC consider to be unacceptable tax avoidance may attract favourable headlines in certain sections of the media, in the view of the IFS, this has come at a cost in terms of the erosion of the rule of law.
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