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KEY POINTS
- Joint meeting between London branches of ARC and CIOT was 'lively'.
- Has the enquiry window effectively been abolished?
- Disagreement on whether record-keeping is a 'balanced package'.
- In what situations can an officer visit a taxpayer's home?
It must have seemed a fairly uncontroversial idea at the time.
The London branch of the CIOT has held previous joint meetings with the equivalent branch in the Association of Revenue and Customs, representing senior staff in HMRC.
Looking for a topical subject for a meeting two weeks ago, they hit on the idea of powers and tribunals. Four speakers were found, so that one from HMRC and one from the profession would speak on each subject; and the tax advisers and ARC members met at 100 Parliament Street.
At which point, a series of controlled (or not so controlled) explosions went off.
Since they were primarily about the issue of powers, I have stuck with that subject in my report and comments below, and therefore with the presentations given by Richard Davey from HMRC's powers review team, and Andrew Gotch of TaxFellowship.
My apologies to the speakers on the new tribunal system; I hope to return to that subject at a later date.
I have not, by any means, reported everything that they said below, but I have tried to highlight what was said about some of the key points of contention. Richard Davey, having read my report, has then added a comment of his own, below.
Enquiry window
The first explosion was in relation to the power to request information, and its relationship with the enquiry window. Richard explained that the powers can only be used when it was reasonable to do so, and only to check a tax position.
However, the latter is widely defined to include almost anything affecting a liability to any of the main taxes, 'now, in the past or in the future'.
HMRC will link their use of these powers to risk, but if they think something is wrong they don't have to wait for a return to come in and open an enquiry. Instead, they can get in touch with the taxpayer or agent and try and deal with all risks across taxes at one visit, which has obvious advantages for the taxpayer.
However, as Richard went on to say, if the information concerns a year for which a return was submitted, there are restrictions; they will have to go through the normal enquiry mechanism and open it during the enquiry window. HMRC tried in the consultation to get agreement to the abolition of the enquiry window, but there was a strong feeling that it should be kept.
The point raised in questions afterwards was that, although in theory the enquiry window has been kept, in practice (in the view of many on the professional side) it has been abolished.
Richard's talk had made clear that the starting point was a general power to obtain information that was reasonably required in relation to someone's tax position, and that covered (as Andrew Gotch put it) 'Everything with a capital E', regardless of the year or return (if any) concerned, provided that an assessment would be in time.
Richard's response to this was that the Inspector has always had a discovery power, and that this had not changed. Pressed by the advisers in the audience, who pointed out that the power in TMA 1970, s 29 only allowed for the Inspector to make an assessment after having made a discovery, whereas the new power allowed questions to be asked in order that a discovery could arise, Richard pointed to the existing information powers in section 20.
That, however, was felt by the advisers present to be a far more formal power than the new one, intended for more serious cases, although Andrew Gotch pointed out that it was already being used more frequently.
Records
The next issue which raised concern was record keeping, and the right to inspect records in-year. On the rules regarding the records that had to be kept, Richard said that little had yet changed; the provisions simply enabled changes to be made in the future.
The 'real time' inspection power is new for direct tax but familiar for VAT, and Richard said that it was very much seen as a balanced package — people overlook the fact that VAT powers have been massively reined in, since previously there was no 'reasonableness' test.
Some in the audience queried the level to which VAT powers really had been reined in, pointing out that reasonableness could always be raised through judicial review. Andrew Gotch was particularly concerned about the in-year review.
If an officer sees records not as they would wish, they will assume that earlier years are vulnerable to discovery. So in practice the new powers would mean HMRC have carte blanche to take a view on the standard of the records and from that make decisions about where the most lucrative enquiries are likely to be.
Andrew admitted that to an extent there was nothing wrong with that, but said that it needs to be publicised, both to the profession and to the taxpayers who are going to be at the sharp end. Everybody knows that record keeping at the bottom end can be vulnerable, and there was a worrying shift to HMRC requiring perfection in records before a deduction was permitted.
Visits
The final issue that raised hackles was that of visits. Richard went through the legislation and guidance, pointing out in particular that the right to visit did not carry a right to force entry — 'if a taxpayer says go away that is precisely what we will do'.
A penalty would arise if it had been pre-authorised. If HMRC were sent away the first time when the visit was not pre-authorised, they would get authorisation for the second visit.
HMRC can only visit business premises; and guidance has been written on how that will be defined. Homes are expressly excluded. If part of the premises are used for business and part not, then access is only to the business part of the premises. The visit must be reasonably required to check the tax position.
Pressed in questioning about whether writing up records for a few hours a week in a spare bedroom made that part of the premises liable to a visit, Richard said that it did, but that guidance is likely to say that an officer contemplating a visit to what was essentially a home should think twice or three times about what he was going to gain in seeing the records there. In Richard's view the answer was 'nothing', so the officer would surely simply ask for the records to be sent in as at present.
Andrew Gotch queried whether a taxpayer could refuse to answer questions during such a visit. The visit legislation includes a 'power to obtain … information' related to records and assets. 'Information' (which is undefined) can be verbal. So would there be a penalty, say for obstruction, if one refused to answer a question?
Further, the penalty legislation at FA 2007, Sch 24 expressly contemplates penalties for carelessly or deliberately inaccurate verbal information, so great care is required.Richard said that this was a scenario they had not explored, but that he found it hard to believe a penalty would apply in that situation. It was, however, true that 'document' now included almost anything.
Conclusion
It's not really possible to get across the flavour of the meeting just by reporting what was said. There was a real sense of growing discontent in the profession on the final outcome of the powers legislation now that the implications of it are beginning to be understood.
Richard Davey deserves a great deal of credit for not having ducked any of the questions thrown at him, and he was clearly not expecting such an onslaught. His comments above should be read in that sense, and not necessarily as the final word on the subject from HMRC.
However, the reliance on guidance and on a common-sense approach did not reassure the tax advisers.
Most, I think, were quite happy that officers such as Richard (or indeed the other ARC members in the room) would not take an unreasonable view, but they were aware from experience that a minority of officers do sometimes take up unreasonable positions, and advisers are concerned that our safeguards against them, particularly in direct tax, have been significantly reduced by the new legislation.
It will not surprise anyone that the response from Taxation to the controversy raised by this debate is that we need a taxpayers charter, which is not written in its entirety in statute like a Bill of Rights, but which does have sufficient statutory backing so that it can be referred to in tribunals and court cases.
To see the latest analysis and news on this, go to TaxpayersCharter.co.uk.
Response from Richard Davey
In the section on records Mike reports that I said that the VAT powers had been reined in and mentions the absence (pre-Schedule 36) of a reasonableness test in the VAT power to require production on demand from any person concerned in the supply of goods (including the consumer) of any documents relating to that supply.
It is accepted, nonetheless, that HMRC is required to act reasonably. It is just that this is not spelt out in the specific part of VATA to which I was referring.
And I also cited the fact that the existing VAT information powers legislation requires no written notice, no authorisation (internal or external) and contains no appeal right as evidence that the VAT powers had been curtailed.
While members of the audience mentioned that there had always been the option of taking judicial review, one of the objectives behind FA 2008, Schedule 36 is to create a simpler and less expensive safeguard in legislating that HMRC have to act reasonably.
In the section on visits it is noted that the legislation includes a power to obtain…(and record)… information. In the context in which this provision appears the word 'obtain' is qualified by being used with 'record' and is especially relevant to the recording of information about assets that have been marked.
It ensures that an officer can access the information so that he or she can record it. It is not intended that this amounts to a right to demand an oral reply to a question and a person refusing to answer questions will not incur a penalty for obstruction.
It is also worth noting that that while a document is defined to include an oral reply in relation to the application of penalties for inaccuracies in documents (FA 2007, Sch 24 para 28 ), for the purposes of FA 2008, Schedule 36 a document is 'anything in which information of any description is recorded' ( FA 2008, s 114(2)). So, in relation to information powers an oral reply is not a document.
I would like to confirm that many of the areas of contention raised during questions will be addressed in guidance.
Technical guidance has already been exposed to an external readership panel, which includes a representative from CIOT, and it is planned to circulate detailed operational guidance before the end of the year.
