New Look Hansard

New Look Hansard

CHRIS JOWITT and JEFF KELLETT analyse the revised Hansard extract, and consider the implications for tax advisers and taxpayers.

THE LONG AWAITED revised Hansard extract was issued on 7 November 2002. It reads as follows:

'In reply to a Parliamentary Question, the Chancellor gave the following answer regarding serious tax fraud.

“The practice of the Board of Inland Revenue in cases of suspected serious tax fraud is as follows

“The board reserves complete discretion to pursue prosecutions in the circumstances it considers appropriate.

“Where serious tax fraud has been committed, the board may accept a money settlement instead of pursuing a criminal prosecution.

“The board will accept a money settlement and will not pursue a criminal prosecution if the taxpayer, in response to being given a copy of this statement by an authorised officer, makes a full and complete confession of all tax irregularities”.'

A new Hansard extract has been inevitable since the adoption of the Human Rights Act into United Kingdom law. This was highlighted in the comments made by Lord Hutton in R v Allen [2001] STC 1537. Under the old Hansard, even where a full and complete disclosure was made, the Revenue reserved the right to bring a criminal prosecution. In practice, this never happened, as confirmed by the Revenue news release on 8 November 2002, but the new extract brings the Revenue practice into line with the House of Lords' decision in Allen. Lord Hutton's view was that where a full and complete disclosure was made, it would be inequitable for the Revenue to proceed with a criminal prosecution, especially if the Revenue used any evidence provided by the taxpayer in court. The new extract removes any ambiguity.

In the news release of 8 November 2002, it points out that the opportunity to make a disclosure under Hansard does not last indefinitely. If an 'unreasonable amount of time', which is not defined, is taken in making a full disclosure, Hansard may be withdrawn and, dependent on information held or obtained by the Revenue, an investigation may be started with a view to a criminal prosecution.

Protection or opportunity?

The profession often talks of obtaining the 'protection' of Hansard. One of the writers vividly remembers several years ago receiving a long lecture from an Enquiry Branch Inspector, to the extent that Hansard was not a 'protection' and should never be viewed as such. It is, however, an 'opportunity', although had that been suggested to the Inspector at the time, one chastened adviser might still be sitting there being lectured.

New code

A new Code of Practice 9 has also been issued. There are several additions, variations and changes of emphasis to the previous version. There have been several meetings in various locations at which senior officers within Special Compliance Office have outlined the board's new policy and said how they see it being put into practice.

The most important changes are dealt with below.

Co-operation

Under both the old and the new procedures, a full and complete disclosure is required. However, the old procedure also required the full co-operation of the taxpayer. This requirement is no longer necessary, and the new procedure stresses that it is the decision of the taxpayer whether or not he decides to co-operate.

Under the new procedure, it would be sufficient to respond to Hansard by merely making a disclosure, so long as it was full and complete, and then to refuse to answer any questions or to co-operate with the Revenue in any way. This lack of co-operation would be reflected in calculating penalties at the end of the investigation.

Meetings

The new procedure says that attendance at meetings is an important part of co-operation. The previous statement: 'You are not obliged to attend any meeting' is gone from the new procedure. This will become a factor in deciding the mitigation of penalties at the end of the investigation.

Authorised officer

The Hansard extract could not be used in local districts under the old rules, but the new procedure specifically defines an authorised officer as 'a current serving member of the Inland Revenue Special Compliance Office'.

Five questions

The five questions have always been a part of the investigation process under Code of Practice 9, but they were never mentioned in the old rules. They are part of the new policy, and the actual questions are now contained at page 16 of the code. There used to be minor variations in these questions between Special Compliance Offices in the past, but now they have been standardised.

Time limits

There is a definite marker in the new procedure, which says that ' we would normally expect the disclosure report to be submitted within six months of the opening meeting'. This seems very tight, especially where there may be several directors or partners involved. Obtaining third party information is usually the main cause of delay and is an area over which the adviser often has little, or no, control.

Anyone who has been involved in preparing a disclosure report for Special Compliance Office will appreciate how much time is involved. The six-month time scale will almost certainly impact on the smaller practices, which may struggle to free the necessary resources, often at partner level, to deal with the issues.

The time of year may also have a bearing on the process. If the opening meeting takes place at the end of July, the expected date of submission of the report would be 31 January, just at the time of the annual rush to complete all clients' tax returns.

Will Special Compliance Office take such factors into account?

The indications given by Special Compliance Office officers is that the six months will not be set in stone. If there are genuine problems in meeting this timetable, the Revenue will be flexible, but it is going to be very important that there is dialogue between adviser and investigator. Special Compliance Office would not be receptive to a request for an extension to the time limit at month five where work had either not been started or little work had been carried out. On the other hand, if there were genuine problems in obtaining information, this would be treated on its merits.

The old rules said that the Revenue would attempt to reply to letters within 28 days. The new policy reduces this to 20 days. Special Compliance Office's initial target in dealing with a report is to make an immediate check to ensure that it is complete. This check is of items such as the certificates and appendices. If they are unsigned, or missing or incomplete, Special Compliance Office aims to inform the adviser within ten working days. Thereafter, it aims to indicate to the adviser how it will proceed with the investigation within three months.

There was some interesting discussion as to whether or not Special Compliance Office would commit to a timetable to final settlement. Officers said they would take this point for consideration, but it will not happen immediately. Interestingly, the deputy director of Special Compliance Office said that he had worked to a rough rule of thumb that cases should be settled within the same time scale as had been taken to submit the report. If the report had taken two years to prepare, then the Revenue should aim to settle within two years. The consensus of the meeting was that this seemed fair and reasonable.

Payments on account

The old rules said that the Revenue '… will offer you the chance to make a payment on account ...'. The new rules say 'We will ask you to make a payment on account ...'. This is in line with past practice.

Perhaps more interestingly, the new rules say that making a payment on account, in addition to reducing interest charges, '... will demonstrate your willingness to reach a money settlement'. This will strengthen the Revenue's hand in asking for payments on account, and it will increasingly become a factor in penalty negotiations.

Self-assessment returns

This section has been shortened, but is far more direct. The new policy states that complete and accurate tax returns must be submitted by legal deadlines. It will be regarded as a serious offence if an incorrect return is deliberately submitted. The wording in the old policy was '…

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