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KEY POINTS
- The difference between a taxpayers' bill of rights and a taxpayers charter.
- The British way of giving legal effect to a charter.
- Vires provisions direct departments to produce a code of practice or similar.
- Individual HMRC officers should not be responsible for breaches of a charter.
On 19 June 2008, HMRC published a consultation document entitled A new charter for HMRC and its customers. This followed an announcement in January that the Government intended to work with interested parties on the development of a new taxpayers charter.
Paragraph 1.7 of the document states:
'The new charter will not be set in legislation. The wording of an accessible and useful charter is not intended to be that of legislation but a guide to the law. The use of statutory wording in a charter will compromise the intention of creating a simple statement of the basic rights of taxpayers/customers in their relationship with HMRC.'
In this article I examine the legal basis for a new charter in the light of this decision by the Government that it will not be set in legislation.
Two patterns
There are at least two patterns adopted in other countries for producing a taxpayers charter.
The first pattern, which can be distinguished as a taxpayers' bill of rights is to enact the provisions of the statement of rights in primary legislation. This may be in the revenue code itself, or it may be in separate law which deals exclusively with taxpayers' rights.
In the United States, at federal level, there are no less than three taxpayers' bills of rights, all contained in primary legislation and taking effect as amendments to the Internal Revenue Code.
Spain and Italy, on the other hand, have enacted specific legislation in recent years which contain a code of taxpayers' rights. The Russian Federation, to take an extreme example, has a chapter on taxpayers' rights in its revenue code.
The second pattern is for the tax administration of a country to issue a declaration of taxpayers' rights (and possibly obligations as well), but not to include those rights in primary legislation. In many of the individual states in the United States, for example, there is a taxpayers charter which takes this form.
Similarly, France has a charte du contribuable which specifically has no force in law.
When the consultation document refers to a new charter for HMRC not being set in legislation, it is assumed that this means that the first pattern identified above has been rejected. There will be no statutory taxpayers' bill of rights in the next Finance Act.
Statutory approach may be wrong
There is, as the document indicates, good reason for avoiding this approach. The approach to statutory drafting in many of the countries that have adopted the form of a taxpayers' bill of rights is that of setting out broad statements of principle in the legislation.
That has not generally been the approach in this country, and if a UK statutory draftsman were asked to draft a clear, concise statement of taxpayers' rights (and possibly obligations), the resulting nervous breakdown might not be very pretty to watch.
Incidentally, the fact that the document recognises that the use of current approaches to statutory drafting would compromise the intention of creating a simple statement of rights, says a lot about the problems of statutory drafting in this country.
In some of those countries which have adopted a bill of rights, the courts are also quite adept at taking general statements of principle and applying them to concrete circumstances.
While the courts in this country are certainly becoming more adept through their application of European Community law and the European Convention on Human Rights, in tax cases at least they are more skilled at dealing with the traditional type of legislation.
That is not to say that a time will not come when it would be possible to enact a taxpayers' bill of rights as, say, Schedule 1 to some future Finance Act; but that time has not yet arrived. To that extent, the author endorses the Government's decision not to set out the actual terms of the charter in the legislation.
However, this does not mean that there is no role for primary legislation in connection with the publication of a new charter. Quite the contrary. There is a third way — a very British, third way — for giving legal effect to the new charter. This article contends that the new charter should be based upon specific primary legislation (which should be contained in the Finance Act 2009).
Use a vires provision
There are many, many precedents in UK legislation of vires provisions (for want of a better term) which direct a particular Government department or other body to issue a code of practice or other guidance as to how that body will exercise its powers or discretions.
These precedents are found in a whole host of different statutes, from those dealing with the police and covert surveillance agencies, to those dealing with education, or with water and sewerage authorities. These precedents can easily be used to provide clear legal basis for the introduction of the new HMRC charter.
These vires provisions typically direct that the department or body concerned should produce a code of practice or some other similar document. They typically require the department or body to consult before adopting the code of practice and sometimes identify those who should make up the consultation committee.
They typically provide for some form of presentation of the code to Parliament, possibly by laying a copy of the draft code before both Houses of Parliament, and may give the possibility for the code to be debated before adoption. Most of these vires provisions explain what legal effect (if any) the code has. Some of them provide for the code to be reviewed and amended from time to time.
These provide an excellent pattern for a provision to be included in next year's Finance Bill, dealing with publication and legal effect of a new HMRC charter. A vires provision in the Finance Act could:
- direct the Commissioners for Revenue and Customs to issue a new charter;
- direct the Commissioners to establish a consultation committee with representatives of HMRC officers, representative bodies and other interested parties; and
- lay the draft code before both Houses of Parliament.
The vires provision could also usefully provide that the consultation committee should continue to review the operation of the new charter; that a report on the operation of the charter should be presented to Parliament by the Commissioners once every five years (say); and that any amendments to the charter should be presented to Parliament in the same way as the original charter.
The legal effect
Most critically, the vires provision in the Finance Act should also deal with the legal effect that the charter has. Saying nothing about the legal effect would be extremely unwise. The charter will unquestionably be referred to in correspondence between taxpayers, their advisers and HMRC, and it will be raised in litigation before tax tribunals and the courts.
If there is no vires provision and no clear statement of the legal effect of the charter, then a court will eventually have to decide what effects, if any, the charter has.
This leaves the legal impact entirely to the vagaries of litigation. If a court eventually decides that the charter has no legal effect and that it is simply an aspirational statement, then the whole exercise of producing it will have been pointless, and it will rebound on HMRC as they will be perceived as not being serious about protecting taxpayers' rights.
On the other hand, a court might conclude that the charter is completely legally binding on HMRC when exercising any discretion, and might even hold individual revenue officers to be personally responsible for any breaches of the charter. That would also be undesirable.
If for no other reason, this is a good argument for including a vires provision in primary legislation, and dealing in that provision with the legal effect of the charter.
Three ways
In that context, it is suggested that the legislation might deal with the legal effect of the charter in three ways. First, it should state that officers of HMRC must take account of the rights (and obligations) in the charter in carrying out their functions.
This is fairly obvious: if promulgated by the Commissioners or Treasury ministers, the charter should at least have that effect. Secondly, any breach of the provisions of the charter should not give rise to any disciplinary action or other action against an officer of HMRC or any other person.
Clearly it would be wrong to hold individual officers responsible for a breach of the charter which may arise through inadequate training or inappropriate instructions. On the other hand, it might be appropriate to state that the Commissioners should be responsible for ensuring that HMRC officers are informed of the terms of the charter and give it effect in exercising their functions.
Thirdly, it would seem appropriate to provide that a tribunal, a court, the Adjudicator and the Ombudsman should take such account of the charter as they consider appropriate in the circumstances of a particular case. It will be very hard at the outset to decide what, if any, effect should be given to a particular breach of the charter (or, for that matter, the observance of a provision in the charter) in any particular case.
This type of approach is more flexible and allows a tribunal or court (and the Adjudicator and Ombudsman) to take such note of the charter as is appropriate in the circumstances.
General powers
It is probably true that the Commissioners for Revenue and Customs could issue a charter under their general collection and management powers.
However, that approach seems significantly less attractive. It would not clarify the legal effect of the charter, nor provide for proper consultation, debate and review. The promulgation of a new charter is an opportunity for HMRC to reassure the public of their commitment to protecting their rights and of their desire to convey a message that there is to be a change of culture within HMRC.
A critical factor in properly conveying this message is to give some legal effect to the charter and the process of its adoption: the precedent of vires provisions would be a good basis for taking this forward.
Thus the decision by the Government that the new charter should not be set out in legislation, does not mean that it will have no legal effect. Instead, it would be the best approach for the Government to include a vires provision in the next Finance Act setting out the process for adopting the new charter and specifying what legal effect it will have.
It is hoped that the decision to take this approach will be one of the results that follows from the current consultation process.
Philip Baker QC, CTA is a barrister at Gray's Inn Tax Chambers
