In a wide-ranging report into HMRC powers, MPs on the influential Treasury Sub-Committee have told HMRC to urgently review and improve the accessibility, quality and level of detail of guidance it provides to vulnerable taxpayers, and must do more to support them when they are involved in tax disputes by providing better guidance about tax law and more help to understand their rights.

HMRC was told that it must set out a clear timetable to achieve this and must report back to the Committee as soon as a plan is in place. It was also told to clarify its definition of ‘vulnerable’ to improve transparency.

‘HMRC should provide a clearer explanation of its definition of “vulnerable” when it comes to identifying such customers. We have heard that it is too difficult for anyone involved in a tax dispute with HMRC, and with little knowledge of the tax system, to find adequate information from HMRC to help them understand the law and their rights. HMRC should urgently review and improve the accessibility, quality and level of detail of the guidance it makes available to vulnerable taxpayers,’ the report said.

Loan charge

MPs were also critical of the way HMRC has dealt with the loan charge issue, saying the tax authority had caused confusion over repayment terms and took too long to sort out the loan charge calculations and notify taxpayers of long-standing tax bills.

At various committee hearings, MPs were told that it was ‘too difficult for anyone involved in a dispute with HMRC and with little knowledge of the workings of the tax system to find adequate information from HMRC to help them understand the law and find out about their rights and the help that is available to them’.

On the controversial loan scheme rules, there was criticism of the way HMRC operated the contractor loan settlement opportunity (CLSO) which gave those earning less than £50,000 five years to pay their tax bill.

MPs said HMRC’s delay in clarifying this approach and sending settlement calculations to contractors caused widespread anxiety and distrust.

In offering time to pay arrangements to people who wanted to settle tax bills related to contractor loan schemes and undertaking not to make them bankrupt or force them to sell their family home, HMRC is now taking a sensible administrative approach at least, following earlier harsh criticism of its approach by the Committee.

HMRC was also told to closely monitor its response times to dealing with loan charge issues and report back to MPs on the progress in providing settlement calculations. It will also have to provide updates on the number of cases that have been concluded under the CLSO.

Commenting on the report, John Mann MP, chair of the Treasury Sub-Committee, said: ‘One of HMRC’s key responsibilities, as required by parliament, is to protect public funds from tax avoidance. As such, HMRC introduced the loan charge to tackle the use of disguised remuneration schemes, which it describes as an anti- tax avoidance measure.

‘Setting aside the policy, HMRC’s administrative approach to the payment of large unexpected tax bills has been sensible. The delay, however, in clarifying payment terms for those wanting to settle their past use of such schemes has caused widespread anxiety and distrust.’

MPs acknowledged the importance of tackling aggressive tax avoidance and told HMRC to ‘vigorously pursue the promoters and enablers of avoidance schemes to the full extent of its powers, and update the Committee on how it will deal with tax advisers who continue to promote or enable tax avoidance’.

The report stated: ‘It is important for parliament and taxpayers to be confident that HMRC has a robust picture of the number of people that are involved in tax avoidance schemes or whose past involvement in tax avoidance remains unresolved, how much tax is at risk and the years involved.

'It is equally important to know all the parties involved, which of those parties may ultimately be liable to pay any unpaid tax and what means they have to settle.’

Going forward, HMRC will have to provide annual reports to the Committee outlining the scale of the evasion issue, including a summary of the number and characteristics (sector, income, profile, etc) of people it knows to be involved in tax avoidance schemes.

Offshore promoters

There were also calls for HMRC to review whether it had adequate tools to tackle offshore tax evasion, with a warning that ‘HMRC needs to be alive to the dangers of building up a large stock of offshore evasion enquiry cases and should make sure that sufficient resources are allocated to the conduct of enquiries to ensure that cases are brought to resolution as quickly as possible’.

At the hearings before the Committee, then CIOT president Ray McCann told MPs that ‘a very substantial proportion of [avoidance] schemes were marketed and promoted from offshore. Certainly, some of the more notorious providers of these schemes are based in the Isle of Man and have been based in the Channel Islands’.

The complexity of dealing with offshore promoters was recognised by MPs. ‘When it comes to dealing with offshore promoters, taxpayers or jurisdictions concerning tax avoidance and evasion, HMRC should set out any powers and measures it feels need tightening or enhancing through legislation,’ the Treasury Committee report said.

However, when questioned by the Committee earlier this year, David Richardson, director general of customer strategy and tax design at HMRC, said that HMRC had ‘pretty well got the full hand that we have been looking for as a result of measures that have been introduced over the last five or six years’. He said accelerated payment notices, which require upfront payment of disputed tax avoidance schemes, as ‘probably the biggest game changer’.

The potential of more powers for HMRC was not welcomed by CIOT tax policy director John Cullinane, who said: ‘The constant flow of new and strengthened powers to HMRC over the last seven years has not allowed for anything like sufficient evaluation of their overall efficacy. There is need for early and full consultation on new measures and for effective and routine post-legislative review of whether measures are achieving their objectives. The balance of power lies decisively in favour of HMRC making effective oversight of how it uses those powers essential.’

The Committee also called on HMRC to work closely with the professional institutes to ensure that advisers follow the code of conduct.

It recommends that HMRC engages with the professional bodies in the UK that are signatories to the Professional Conduct in Relation to Taxation (PCRT) standards, including ICAEW, CIOT, ICAS, ACCA, and ATT among others, to ensure that the code of practice is clear and robust enough to ensure that tax advisers work within the law. The PCRT code was last updated in 2017 and at the time was approved by the Treasury.

Cullinane added: ‘CIOT welcomes the recommendation that HMRC works with the professional bodies to consider whether their standards are sufficiently clear about conduct relating to all stages at which our members may be called upon to provide advice on tax avoidance, including stages leading up to settlement of a tax dispute. HMRC has also acknowledged that the updated guidance is an acceptable basis for dealings between members of the bodies and HMRC.

HMRC’s approach to dispute resolution

The Sub-Committee heard it was not the case that HMRC took a ‘lighter touch’ with large corporates. Concerns expressed by tax advisers that HMRC may be being particularly strict in applying penalties to large corporate businesses provides an opportunity to remind HMRC that it must be fair and consistent in its application of tax law.

The 36-page Disputing Tax report is the result of two tax-related inquiries conducted by the Treasury Committee, covering the steps that HMRC has taken to address public concerns around tax avoidance and evasion, and a second on HMRC’s approach to conducting tax enquiries and resolving tax disputes, with a focus on its governance and settlement processes. There were 126 written submissions to the inquiry with four witness sessions before the committee.

House of Commons Treasury Committee report – Disputing Tax, issued 31 July 2019

Sara White | 31-07-2019