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HMRC have underrated the impact of their plan for direct recovery of debts
KEY POINTS
- HMRC’s proposals for the direct recovery of debts have stirred up much passion and angst in the tax world.
- HMRC’s perception of the strength of feeling is at odds with reality in the profession.
- A fundamental mistake was made by merging stages 1 and 2 of the consultation process.
- The profession must acknowledge HMRC’s belief that they require new debt collection powers.
- The introduction of a further pre-draft-legislation stage would ease concerns.
Since the turn of the millennium, only a few things in the tax world, such as the introduction of tax credits, UITF 40 and the proposal to require all self-assessment returns to be filed by the end of November, have stirred up a great deal of passion and angst within our profession.
However, the May 2014 HMRC consultation document (condoc) simply entitled Direct Recovery of Debts (DRD) has, without doubt, registered towards the top end of the tax equivalent of the Richter scale with aftershocks occurring with alarming regularity.
Using my seismic analogy, the only thing that really appears open to question is the exact order of magnitude on the tax-Richter scale of the proposals?
HMRC would have us believe the impact is “light”. That is to say, the proposals contained in the condoc will not register more than four on the tax Richter scale. In essence, they see the proposals as being targeted, proportionate and supported by adequate safeguards.
As a result, the tremors will only be felt by the should-be-taxpayers “gaming the system” – in effect those living on the tax equivalent of the San Andreas fault line.
Disaster movie
HMRC’s view starkly contrasts with that of others outside of the department. There is a variety of cited reasons, such as HMRC already having sufficient powers in their armoury or that the powers breach Magna Carta.
Such parties believe that the proposals, if implemented, will measure at least nine on the scale and the ensuing quake damage will assume proportions only seen in disaster movies.
Well that’s enough of the earthquake metaphor. For more than a decade I have been privileged to attend the ICAEW’s annual Wyman symposium, which is always a thought-provoking, informative and every so often controversial event.
With DRD being the topic for debate this year, I knew the event would tick all the boxes. That said, I had not been prepared for the cathartic outpouring from fellow attendees, all of whom recounted tales of woe in respect of HMRC maladministration, which were used as justification for the Revenue being denied the powers they are seeking.
While listening to the passionate concerns expressed two things occurred to me.
First, with passions running high on the night, I fear that the underlying concernwas obscured: that, as long as errors continue to be made in collecting debts, independent oversight is an essential component to ensure the needs of HMRC are balanced with the rights of the taxpayer.
Second, I left feeling that, after a number of years of improved relations between HMRC and the profession, we were in danger of moving back to the lows last experienced back in 2006.
Lessons from the past
At the risk of oversimplifying history, one of the reasons (and there were many) why the relationship between HMRC and the tax profession hit a low point in 2006 was that the Budget that year heralded major changes to trusts that had not been subject to consultation.
Indeed, the greater frustration to the tax profession was that all the surrounding engagement activity in the inheritance tax and trust-related area had been ignored.
The key difference between 2006 and 2014 is that DRD is not being delivered to us as a total fait accompli; however, it is not being exposed to proper consultation.
Most of us involved in the response production process feel that it is being rushed along without sufficient time to enable a reasoned debate to flourish. It is this point that is really generating most of the heat for HMRC.
How did HMRC get it so wrong?
After a period of consultation in March 2011, HM Treasury and HMRC jointly published The government’s tax consultation framework. This was an excellent principles-based document that set out five distinct stages to the development and implementation of tax policy as follows.
- Stage 1. Setting out objectives and identifying options.
- Stage 2. Determining the best option and developing a framework for implementation, including detailed policy design.
- Stage 3. Drafting legislation to effect the proposed change.
- Stage 4. Implementing and monitoring the change.
- Stage 5. Reviewing and evaluating the change.
Taking this into account and “the aim is that a response document to this consultation will be published in autumn 2014, and draft legislation will be published for consultation at autumn statement 2014 [sic]” (DRD condoc, page 2) I believe that HMRC have made a fundamental mistake by merging stages 1 and 2 of the consultation process.
As a result, they are giving little in the way of reassurance to interested parties because they are denying sufficient time for a proper reasoned and considered debate before moving to stage 3.
I consider this to be a major flaw by HMRC in the consultation on something as fundamental as access to a taxpayer’s bank account(s) by a government department under DRD powers.
What’s my position?
Let me state first that there is no place in the UK for taxpayers who deliberately deprive the public purse of revenue to which it is legitimately entitled. These people are defrauding the majority who pay the right amount of tax at the right time.
I am not in favour of just saying “no” to the proposals. Clearly, HMRC feel that something is amiss in their present debt recovery armoury and this alone should justify consultation activity. After all, we would be quick to criticise the department if, after spotting a similar issue, they failed to take steps to address it.
I am in favour of slowing down the DRD process on the basis that the published DRD condoc was far too lightweight and not best structured to encourage a well-informed debate on the key issues.
There is a clear need for a further round of consultation which recognises key concerns and recommendations and addresses fundamentally important issues.
Examples of these are independent oversight, personal responsibility and accountability and robust HMRC processes (including document serving). This tallies with the view that the AAT took in its response to the consultation document, as Adam Harper, AAT’s director of professional development, explained:
“In our response we strongly recommended an extension to the consultation process as this would allow HMRC the scope to properly address the myriad issues that have emerged and to provide clarity and certainty in relation to the numerous unanswered questions that the proposals, as they currently stand, throw up. At the very least this will demonstrate that HMRC have a willingness and capacity to listen on what is clearly a sensitive subject.”
The introduction of a further pre-draft-legislation stage would ease my concerns in respect of the merging of stages 1 and 2 of the consultation process and bring the process back into line with the government’s tax consultation framework which sets out “the best option and developing a framework for implementation, including detailed policy design”.
To finish with an old joke
From the moment I read the DRD condoc I was reminded of the joke about the couple who pull up in a car to ask directions from a local only to be told ... “Well, if I was you, I wouldn’t start from here.”
This is why I am in support of the Power Too Far campaign.
