New powers granted to HM Revenue & Customs are disproportionate and lack safeguards, and HMRC should make better use of its existing powers, according to the House of Lords Finance Bill Subcommittee.
The government must redouble efforts to prevent the proliferation of new tax avoidance schemes, the subcommittee said in a December 19 release. The subcommittee’s report welcomed the government’s intention to take “further tough action” against a "remaining core of promoters" and highlighted the vulnerability of lower-income taxpayers to the schemes, as well as their continued use by some employment intermediaries.
The subcommittee expressed concern about proposed legislation requiring financial institutions to provide information about a specific taxpayer to HMRC when requested, without the need for approval from an independent tax tribunal. “We call for the tribunal approval requirement to remain and for HMRC to undertake a full review of the information request process to find alternative ways in which it could be streamlined,” it said.
The subcommittee noted that the government has said it will consult further on plans to require large companies to notify HMRC of uncertain tax treatments, but said it was concerned that the government “only appears to have recognized that there were significant problems with the measure after committing to legislate in 2021.”
Plans to make compliance with tax obligations a condition of holding some public sector licenses, and to introduce tax checks as part of licensing processes, could present risks to the public if they result in “more traders becoming unlicensed,” the subcommittee suggested.
The government “needs to take more care to abide by basic policy principles” when proposing new or extended powers for HMRC, the subcommittee concluded. It argued that the government does not always follow good practice for consultation and that some policy proposals lack a strong or transparent evidence base. “In some cases, expansive new powers are being granted to deal with problems that appear to be marginal and only affecting a small minority, increasing compliance costs for everyone,” it said.
The subcommittee is “right to back the government’s strategy of tough action against those who devise, promote, and sell tax avoidance schemes,” said Richard Wild, head of the tax technical team at the Chartered Institute of Taxation. It is also right to highlight the need for such action to be proportionate, carefully targeted, and accompanied by safeguards, he said in a December 21 release.
The subcommittee is also right to draw attention to occasions when the government has failed to consult fully or provide rigorous evidence before proposing extensions of HMRC’s powers, Wild said. “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,” he added.
Regulation of Tax Advisers
The subcommittee recommended consultation on options for the regulation of tax advisers who are not members of a professional body. “We also recommend that HMRC works closely with the tax professional bodies on non-legislative action, which can be taken in the interim to help taxpayers source reliable tax advice (such as a register of tax advisers) and to improve advisory material. HMRC should also consider what more it could do to support charities who provide tax advice,” it said.
“We believe an approach which builds on the strengths of the existing professional bodies is the best way forward in this area. That would be more cost-effective, less disruptive, and better for consumer protection than the alternative of some form of statutory regulation,” Jeremy Coker, president of the Association of Taxation Technicians, said in a December 21 release.
Coker welcomed the subcommittee’s “recognition of the role that professional bodies can play in raising advice standards for taxpayers and their call for HMRC to work closely with bodies such as ourselves to help taxpayers source reliable tax advice, for example, through our suggestion of a combined register of tax advisers.”
Government’s Response
“We consulted widely on these proposals as we do on all changes in tax policy and HMRC powers, using a range of evidence and consultative approach to ensure policies are soundly based and thoroughly tested,” a government spokesperson said in an emailed statement. “We keep HMRC’s powers under constant review to ensure it is able to effectively and proportionately combat those who do not comply with their tax obligations.”
Coronavirus Support Schemes
Separately, Meg Hillier, chair of the House of Commons Public Accounts Committee (PAC), called on the government to publish a list of companies that have received grants under the coronavirus job retention scheme. “With billions of pounds of taxpayers’ money going into private companies to support jobs, the least we expect in return is transparency. That is doubly so when speed has been prioritized over effectively targeting support, or checks on the value it offers,” she said in a December 20 release as the PAC published a report on the financial support schemes.
Hillier noted that many workers, including freelancers and entrepreneurs, “have not had a penny and are really struggling” as they continue to fall through gaps in government support. “There is data that could be crunched to reach and help these individuals,” she said.
“The furlough scheme has saved millions of jobs and kept businesses in operation. We will consider carefully the findings and recommendations of the PAC report and respond in due course,” an HMRC spokesperson said.
HMRC has said in published guidance that it will publish information about employers who claim furlough grants for periods starting on or after December 1, as “part of HMRC’s commitment to transparency and to deter fraudulent claims.”