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KEY POINTS
- There is an imbalance between HMRC powers and taxpayer safeguards.
- The minister’s pledge to ensure the new powers regime works.
- The remit of the Powers Implementation Oversight Forum.
- The forum is another safeguard.
Much has been written in the pages of Taxation about the new powers granted to HMRC in Finance Act 2008, Sch 36.
There remains widespread unease about the imbalance between the powers themselves and the statutory safeguards over their use.
I am not going to rehearse again here the issues relating to specific powers; instead I will look at the steps that led to the creation of the Powers Implementation Oversight Forum, which I believe will be of considerable importance for taxpayers and for professional advisers.
Aligning the powers granted by Parliament to the Inland Revenue and to HM Customs after the merger of the two departments in 2005 made obvious sense.
The ICAEW Tax Faculty and other professional bodies lobbied hard for an independent review of powers along the lines of the Keith Commission.
Regrettably, we did not succeed in this and it still seems to me unsatisfactory that despite the involvement of external representatives (via the Powers Consultative Committee) in the development of the new regime, the process was, throughout, under the control of HMRC.
An independent review would have instilled much more confidence that the powers granted to HMRC are reasonable and proportionate, and that the safeguards are adequate.
A significant opportunity has been missed. Schedule 36 is, however, now a reality and we have to focus on how we can effectively monitor the use of the powers and what we can do if they are not being used as intended. This is where the forum comes in.
Powers, safeguards and Parliament
First, let’s wind back the clock a little.
Last November, Jonathan Schwartz considered the evolution of HMRC’s powers when delivering the ICAEW Tax Faculty’s Hardman Lecture, ‘Rights and powers – protecting the legitimate interests of taxpayers’.
He put Sch 36 into its historical context, beginning with the 1689 Bill of Rights, which determined that tax can only be levied with the consent of Parliament. He said ‘unless Parliament actively asserts its rights, the power effectively reverts to the executive, that is ministers and other officers and servants of the Crown’.
He went on to say that ‘those involved in the operation of the tax system very often have the feeling that tax is special and operates isolated from the rest of the legal system’, a view he challenged vigorously.
Opposition MPs clearly shared Jonathan’s view of the importance of Parliament asserting its rights when they considered the 2008 Finance Bill and it is worth recording one key exchange on the question of powers, safeguards and the increasing and unsatisfactory tendency to use guidance as a substitute for legislation.
On 10 June 2008, in the Public Bill Committee’s consideration of Sch 36 of the Bill, the Liberal Democrat MP Jeremy Browne said:
‘We continue to have serious concerns with regard not just to this schedule and legislation but to other Government legislation generally about the lack of safeguards afforded to the taxpayer and the Government being empowered to make changes without going through the degree of parliamentary scrutiny which we would wish to see.’
For the Conservatives, David Gauke MP added:
‘The detail on the safeguards by no means matches the detail on the powers and deterrents… From what we have heard, most of the safeguards will be in the form of guidance rather than in the regulations… I would be grateful, however, to hear the Government’s explanation of why the particular procedures are in place, as opposed to something that gives Parliament greater scrutiny, given that this is an important schedule with important powers.’
Mr Browne then went on to say:
‘We are trying to strike a balance between, on the one hand, an HMRC empowered to do its job on behalf of taxpayers in order to maximise the revenue accruing to the Government through entirely legitimate and legal procedures, and on the other safeguarding the rights of the individual… I am keen to see Parliament’s powers extended, so that it can continue to scrutinise in great detail any future changes.’
On 1 July, Jane Kennedy, the Financial Secretary to the Treasury, said:
‘Inevitably there will be tensions as we seek to ensure that HMRC has appropriate powers to work effectively, and that taxpayers have strong safeguards. The balance has changed, but in my opinion it has changed in favour of the taxpayer. As I have said repeatedly, if there is any evidence that the changes work detrimentally in the way that he described, I shall wish to act to address that. At the heart of all our proposed changes is the need for HMRC’s actions to be reasonable. Guidance will support the safeguards, and will seek to ensure that taxpayers are fully aware of their rights.’
The words I have highlighted in italics are important: I take them to be the minister’s pledge that if changes to the powers regime work detrimentally, the minister will act.
At the forum
But where is the evidence regarding the operation of the powers to come from and how is it to be brought to the minister’s attention?
In paragraph 5.91 of the 2008 Pre-Budget Report, the Government announced that HMRC would ‘set up a new joint forum with representatives from the private sector to oversee the implementation of the legislative outcomes of the review’.
Invitations to join the forum were issued earlier this year by Stephen Timms MP, Jane Kennedy’s successor as Financial Secretary to the Treasury. It is expected that the forum will meet up to four times a year for the next four to five years.
Members are drawn from HMRC and from accountancy and tax professional bodies (the ICAEW, CIOT, ICAS and ACCA) as well as from the Confederation of British Industry, the Federation of Small Businesses, the Law Society and those speaking for unrepresented taxpayers. The forum is chaired by Dave Hartnett, permanent secretary for tax.
While the numbers are deliberately weighted towards the private sector representative organisations, it is perhaps a little surprising that the chairmanship is not independent of HMRC (for which there is a precedent in the Administrative Burdens Advisory Board, chaired by Teresa Graham), but in view of the forum’s composition and the degree of transparency its proceedings will have, this is not something that concerns me greatly at this stage.
The forum is to report direct to the Financial Secretary to the Treasury and these reports, as well as the minutes of meetings, are to be published. The reports are to include recommendations for areas of improvement.
Having this degree of transparency from the start should help the forum to be seen as a genuine attempt to monitor the actual application of the new powers.
The forum’s detailed remit, as set out in the draft terms of reference, is:
‘To provide assurance to the Financial Secretary to the Treasury and the HMRC chairman and commissioners that the policy outcomes of the review of powers, deterrents and safeguards are being delivered in line with the undertakings given to Parliament, and that:
- ‘taxpayers have sufficient and accessible safeguards and these rights are being clearly explained to them;
- ‘HMRC is using the powers provided to it reasonably and in a proportionate and fair manner;
- ‘deterrents are having the intended positive effect on taxpayer behaviour;
- ‘the powers provided to HMRC are effective in helping it to reduce the tax gap and to operate efficiently;
- ‘taxpayers, agents and HMRC officers are provided with sufficient training, guidance and support to be able to understand and administer changes to powers, deterrents and safeguards and to make any consequent behavioural changes that are required.
‘And in particular that:
- ‘compliance checks are proportionate to risk and administered within the bounds of HMRC’s technical and operational guidance;
- ‘penalties are applied consistently and are effective in encouraging taxpayers to meet their obligations;
- ‘taxpayers are appropriately supported to meet their payment obligations and HMRC uses its new powers to pursue debts effectively, efficiently and proportionately.’
These draft terms of reference allow the forum to commission and receive both qualitative and quantitative reports relevant to implementation in order to inform its thinking and to give weight to its reports.
I do not wish to anticipate the methodology the forum will agree – those discussions have yet to take place – but the representative bodies will need to devise ways to monitor the actual experience of their members at the sharp end.
I am sure that the forum’s work and its reports will be covered in Taxation and I hope that readers will feed their practical experiences into the forum via the representative bodies.
The effectiveness of the forum will be heavily dependent on it having reliable evidence of what is happening, both from HMRC’s own internal reports and from practitioners and taxpayers.
The first meeting was held at the end of March. Dave Hartnett described it as ‘the beginning of a co-operative and collaborative venture between HMRC and its principal external stakeholders for tax’.
He said that the Financial Secretary to the Treasury remained very engaged with and supportive of the whole project to legislate and implement new powers and safeguards and that ministers see it as a vital piece of work.
In addition to discussing the terms of reference and membership, the meeting considered HMRC’s powers training programme and the potential for joint training, something the Tax Faculty has been in discussions with HMRC about for some time.
The minutes of the first meeting together with the agenda, terms of reference and supplementary papers can be found on HMRC’s website.
The forum is certainly no substitute for statutory safeguards, but its creation is a very positive step.
My main concern at this stage is that the draft terms of reference are, perhaps necessarily, very wide and because of this it would be easy for the forum to become bogged down in detail.
If it is to be effective the forum must keep firmly in sight the overriding aim of providing: ‘assurance to the Financial Secretary to the Treasury and the HMRC chairman and commissioners that the policy outcomes of the review of powers, deterrents and safeguards are being delivered in line with the undertakings given to Parliament’.
If that assurance cannot be given, the commitment given by the previous Financial Secretary to the Treasury to Parliament should be honoured and the statutory position revisited.
This is an ambitious collaborative venture. It has the backing of the minister, who is taking a personal interest.
The forum’s members are well placed to monitor what is happening on the ground and we will shortly begin to see how the new powers are actually being used.
If they are not used as intended, the forum represents our best chance to do something about it.
Paul Aplin is chairman of the ICAEW Tax Faculty and a tax partner with A C Mole & Sons, based in Taunton. He is a member of the Powers Implementation Oversight Forum.
