[dropcap]T[/dropcap]here has been “a dramatic change in the tone and content of HMRC’s powers” in the past two years, including a proliferation of naming-and-shaming powers, according to a report published by the tax law review committee of the Institute for Fiscal Studies.
The tax experts called for a review of the new powers, which include measures to force taxpayers to pay disputed tax up front, impose penalties under a general anti-abuse rule, deal with “serial avoiders” and recover debts from taxpayers’ bank accounts.
The changes were introduced to give HMRC the upper hand in dealing with avoidance, after years when taxpayers often had little to lose in engaging in tax avoidance and prolonging disputes and litigation.
The report said it did not challenge HMRC’s aim of tackling those “seen to play the system” but it said many of the new powers were “insufficiently focused and have inadequate safeguards”.
It urged the government to introduce some form of independent control over HMRC’s powers “if only to provide confidence in the system and the position of HMRC as administrator rather than lawmaker”.
The report raised particular concerns about the penalties in cases involving “follower notices”, in which HMRC can demand payment of disputed sums after securing a legal victory in a relevant case. In 2016-17, HMRC issued 9,000 follower notices with a total value of more than £520m and 99 follower notice penalties with a value of £6m.
It said: “They make the financial risks of appeal so great that even taxpayers with strong cases may not be prepared to risk going to court. The taxpayer does not just pay over the disputed tax but faces the imposition of a 50 per cent or 60 per cent penalty if they continue to dispute the matter and lose in the courts.
“It is therefore not surprising that some argue that HMRC has been placed above the law through the FN provisions. Reliance on benign operation by HMRC is not a safeguard.”
Similarly, taxpayers are exposed to the risk of a 60 per cent penalty in cases where HMRC decides a taxpayer might be within the scope of the general anti-abuse rule, a relatively new weapon aimed at tackling aggressive tax arrangements.
The report said HMRC justified the new powers, including their limited safeguards, on the grounds it sought to change the behaviour of some taxpayers — “the recalcitrant few”. It also cited statistics showing the courts agreed with HMRC in 80 per cent of cases, making HMRC well placed to identify what transactions would be successfully countered.
But the report said “the powers are written in wide terms which go beyond the target of ‘the recalcitrant few’ and which may easily sweep up the 20 per cent who would otherwise be successful in defeating HMRC in litigation”.
The IFS also raised concerns about HMRC’s powers to collect unpaid tax debts. A public backlash against proposals put forward in 2014 resulted in extra safeguards, including a right of appeal to the County Court and a need for HMRC to believe the taxpayer had no chance of a successful appeal. The IFS report said, however, that “only time will tell how accessible those rights are for taxpayers and especially the more vulnerable; and they only apply once an account is frozen”.
HMRC’s ability to name-and-shame avoiders has increased sharply, the report said. For example, in 2016 it acquired the power to name taxpayers as “serial avoiders”, with information about the tax “avoided” and their addresses being disclosed.
In a statement responding to the report, HMRC said: “Our powers deter the small minority who try to dodge their obligations. Accelerated payment and follower notices are carefully targeted and subject to strict conditions. They contain safeguards to protect taxpayer rights, including the ability for taxpayers to make representations against notices.”
