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HMRC's TV campaign to catch tax evaders
At midday on Monday, 27 February, Taxation magazine received an e-mail from HMRC press office notifying us of a forthcoming television advertisement that would appear on Wednesday, 1 March and would encourage the public to call a new, confidential hotline if they suspect someone of cheating the system. The press release attached to the e-mail was embargoed until 00.01, Tuesday, 28 February.
We managed to refer to this in our 'Update' columns shortly before going to print, but noticed that the press release referred to the 'avoidance' of tax rather than 'evasion'.
On Monday afternoon, we sent an e-mail to HMRC's press office. We said that 'we are interested to note that HMRC continue to use the term “avoidance” rather than “evasion” and we shall be commenting on this in due course. Does HMRC have any further comments to make on this?'
On Tuesday afternoon, we were alerted to the publication of the press release on the Government news network website and noticed that the words 'avoid' and 'avoidance' had now been changed to 'evade' and 'evasion'. We sent another e-mail to the HMRC press office. 'We see that “avoidance” has been changed to “evasion” in today's press release. Can we have HMRC's comments on this last minute change please?'
We subsequently received a telephone call from an HMRC press officer advising us that the change in wording had nothing to do with our earlier e-mail, but was as a result of a continuing discussion between the customer service and compliance functions within the department. Apparently, the sort of people at whom the advertisements are targeted 'don't care about legalities' and the department were seeking to take the wording away from that as understood by accountants and give it a meaning that would apply more generally.
When we expressed surprise that the wording still had to be changed after the issue of the embargoed press release, it was reiterated that the amended wording was not related to our e-mail, but reflected 'a change of heart' within the department.
This certainly gives the impression that some confusion remains within the department regarding the difference between avoidance and evasion despite this being, we were told, Dave Hartnett's 'favourite subject'.
Following a third request for a comment, we received the following statement from HMRC:
'It was always our intention that the campaign was about evasion. We do recognise that there is a real and important difference between avoidance and evasion. The use of the “a” word in the press release did not accurately reflect the intention behind the campaign and so was quickly replaced with the “e” word.'
Working Together
HMRC published Working Together 24 recently. Extracts follow.
New style return
From April 2006, HMRC are carrying out a trial of a new design of the main tax return. Around 10,000 taxpayers, whose affairs are dealt with by West Yorkshire and Craven Area, will be involved. A small number of these taxpayers will be represented, and advisers who deal with West Yorkshire and Craven may find that some clients are sent a new style form, instead of the current 2005-06 main return.
Penalties and aspect enquiries
HMRC have confirmed that they can seek penalties on additional tax liabilities arising in aspect enquiries into self assessment returns.
Apparently agents have expressed concern that HMRC are seeking a penalty in aspect cases where the return is incorrect, but no fraud is alleged, e.g. penalties sought under TMA 1970, s 95 or FA 1998, Sch 18 para 20. These penalties arise where the taxpayer delivers a fraudulently or negligently incorrect return.
HMRC say that penalties form an integral part of their approach to improving tax compliance. These penalties have been in place for many years and are little different for pre-self assessment years.
Where additional tax is due and HMRC seek a penalty for a negligently incorrect return, the maximum penalty is the amount of the tax difference. The legislation sets out the maximum amount of the penalty but HMRC will usually seek a penalty of less than that, in an amount that is '… correct or appropriate' (TMA 1970, s 100(1)). This is in line with the department's policy on abatement of penalties. Each case is considered on its individual merits in order to calculate the appropriate penalty.
HMRC start with the statutory maximum penalty figure and then reduce that by giving abatements for the degree of disclosure and co-operation from the taxpayer during the enquiry and also by considering the seriousness of the offence, i.e. the amount of the error (size) and the degree of negligence that caused it (gravity).
To enable consistency of approach throughout the country, HMRC's Enquiry Manual at para EM6050 onwards gives guidance to officers on how to compute these abatements.
There has been no change in the department's policy of seeking penalties for negligence, and in both aspect and full enquiries exactly the same principles apply to establishing culpability. HMRC have always considered penalties in cases ranging from serious fraud down to a minor degree of negligence. Equally, where HMRC do not see some negligence by the taxpayer, they do not seek penalties. Negligence includes carelessness or lack of reasonable care and can encompass basic errors in the return. Even if an agent is acting, HMRC expect a taxpayer to check the return before signing it. If the taxpayer does not exercise that reasonable care it cannot be said that he can have a reasonable belief that the return is correct and complete.
Finally, HMRC say that they continue to educate staff on issues around culpability and have created training courses for staff dealing with aspect enquiries in both corporation tax and income tax cases.
It should be noted that Enquiry Manual at para EM5140 says that there is no definition of negligence, but that 'To impose a penalty you will need to establish the submission of an incorrect tax return giving rise to a tax difference and at least a lack of reasonable care by the taxpayer in submission of that return. Absolute proof is not essential. The evidence standard is the balance of probabilities. Would the Commissioners believe, on the balance of probabilities, that the error in the return was the result of at least carelessness by the taxpayer?'.
Penalties and human rights
King v UK (European Court of Human Rights, application no 13881/02) confirmed that HMRC penalties for negligence under TMA 1970, s 95 are subject to Article 6 of the European Convention on Human Rights. As a result, HMRC accept that all direct tax penalties having a statutory maximum of 100% of the tax difference or tax unpaid are subject to Article 6. They do not, however, concede that Article 6 applies to any other type of direct tax penalties.
Although the court confirmed the penalty charged in Mr King's case, it criticised HMRC for the delay in making a formal penalty determination. Article 6 guarantees the taxpayer '… the right to a fair and public hearing within a reasonable time'. It recommended that HMRC should, in appropriate cases seek to have appeals against tax assessments and penalty determinations heard at the same Commissioner's hearing. As a consequence, HMRC's guidance has been amended so that if it is not possible to settle tax by agreement, and a contentious Commissioners hearing becomes necessary, HMRC would make a penalty determination so that both appeals could then be listed for the same hearing.
Employer compliance reviews are not covered by the self assessment rules but HMRC are nonetheless taking the opportunity to amend the Employer Compliance Handbook, where appropriate, to correspond with the above guidance.
