Although it won’t quite catch the headlines like the Advocate-General’s decision that Article 50 is unilaterally revocable, the report of the House of Lords Economic Affairs Committee released also on the 4th of December should not go unnoticed. The Committee conducted an investigation into HMRC powers, entitled ‘The Powers of HMRC: Treating Taxpayers Fairly’, looking in particular at the increased powers of HMRC in recent years and the impact of some items of legislation on taxpayers (such as the 2019 Loan Charge). Ultimately, the Economic Affairs Committee issued concerns about the increased powers of HMRC and the lack of safeguards for affected taxpayers.
But in particular, its recommendations relate to the past, present and future. The recommendations in relation to the past could be perceived as odd as these relate to legislation already enacted. Legitimate issues were raised about the scope of existing legislation and its impact on affected taxpayers, such as the retrospective nature of the 2019 Loan Charge and that affected taxpayers, sometimes urged into aggressive schemes by their employers, may no longer be in a position financially to pay the taxes due. The Committee thus made several recommendations about how HMRC ought to operate the legislation going forward, putting the taxpayers clearly on notice where HMRC considers schemes to be ineffective. The Committee highlighted that the issuance of Notices by HMRC which accelerate the payment of disputed tax (APNs and FNs) should be appealable to the tax tribunal given the centrality of the protection of taxpayers. Meanwhile, per the Lords, the naming and shaming provisions went too far and should only apply to those who have broken the law.
But where bad legislation is produced, it is the result of failings on the part of government (in proposing it), the Commons (in passing it) and the Lords (in scrutinising it). Scrutiny after the fact is a poor substitute for scrutiny before. One does query then why the very Parliamentarians that are expected to scrutinise legislation did not flag these issues up when the relevant legislation was being proposed?
In relation to the present, the Lords recommends that proposed extensions to HMRC powers (in relation to offshore time limits and civil information powers) be withdrawn by the government as these are disproportionate or fail to incorporate sufficient safeguards.
In relation to the future, proposed legislation should be more narrowly targeted and should involve more substantive consultation. In terms of safeguards for the future, the report recommends an increased role for the Adjudicator, the taxpayer “Charter” and the Powers Review principles. The report also envisages a greater role for the tax tribunal, both in terms of the increased oversight of the exercise of HMRC powers or the extension of the jurisdiction to judicially review HMRC decisions. This is something that I argued also in a 2018 article in the British Tax Review. But this only skims the surface in what should be a much more comprehensive assessment of the supervision of HMRC. It is important not to overstate the capacity of the courts and tribunals and to understate the other forms of oversight available. In my own submission to the Committee, I highlighted the existing formal routes for scrutinising HMRC powers and urged any proposal to introduce a new form of oversight to consider whether existing forms of scrutiny are adequate (and if not, why not). Indeed, these points are acknowledged too by the Committee:
“There is considerable support for new oversight of HMRC and a compelling need to address the view that HMRC is not sufficiently accountable. It has not been practical to explore this fully and effectively in the course of our inquiry, and we are mindful of the House of Commons’ pre-eminence in financial matters. Further work is needed to determine what new oversight might be established and how it would fit with existing arrangements.”
To this end, the Committee calls for an independent review, commissioned by the Treasury, to consider the establishment of an independent body to scrutinise the operations of HMRC. It goes on to recommend a collaborative body, modelled on the Joint Consultative Committee on VAT, to perform such a function. There are other options, such as the creation of a post of Inspector-General as in Australia, or Taxpayer Advocated as in the US, or perhaps even a change to the role played by the Auditor and Comptroller General.
The report ultimately is to be welcomed and engagement with the recommendations by both HMRC and the Treasury is desirable. Tax legislation has very sharp edges and it is incredibly disheartening to see cases where statutes cut unintended victims.