Modernising powers, deterrents and safeguards
Meeting of the Consultative Committee 3 June 2009
Attendees: Dave Hartnett (Chair), Derek Allen, Ian Menzies-Conacher, Peter Gravestock, Penny Hamilton, Philip Baker QC, Mike Hardwick, Professor John Hasseldine, Tina Riches and Maria Richards (Secretary)
Invitees: HMRC and HMT: Simon Norris, Jim Ferguson, Rachel Button, Juliet Roche, Patrick Clarke, Huw Stephens, Tony Zagara, Laura Lucking, Madeleine O'Brien and Simon Habesch
Apologies: Stephen Alambritis, Roderick Cordara QC, David Cruikshank, Francesca Lagerberg, Lawrence Longe, Chas Roy-Chowdhury and Michael Templeman
Minutes and action points from 2 April 2009 meeting
The minutes were agreed and there were no action points.
Publishing details of deliberate tax defaulters
HMRC introduced a paper on publishing details of deliberate tax defaulters. The Chancellor had announced the inclusion of a provision in Finance Bill 2009 to enable HMRC to publish the names and details of individuals and companies who are penalised for deliberate defaults leading to a loss of tax of more than £25,000. It was not strictly part of the Review of Powers, Deterrents and Safeguards, but built very closely on the new penalty regimes introduced as part of the Review.
The committee asked for information on other countries that operated a publication scheme. HMRC explained that many other countries did not have a publication scheme as such cases were made public because civil penalties were charged by the courts rather than by the tax authority. The proposed scheme was based on the one that had been operating in Ireland since 1983 and HMRC had liaised with the Irish Revenue authorities and arranged to meet members of the Irish tax and accountancy institutes.
Concerns were raised by the Committee around publishing the address of the defaulter. However they were aware of the need to properly identify the correct person. HMRC confirmed that details to be published would be the minimum necessary to correctly identify the person and avoid confusion. If this could be done without the address it would be omitted. As a further safeguard the taxpayer would be notified in advance of the details to be published and given a reasonable opportunity to make representations to a senior HMRC officer, independent of the investigation.
The Committee were concerned that those subject to a civil penalty could have their details published in the same way as those convicted of a criminal offence for tax evasion. HMRC explained that there were many reasons as to why they may decide not to prosecute but to charge a civil penalty. Those subject to a civil penalty would be able to escape publication if they made a full disclosure to HMRC, either unprompted or prompted within a time specified by HMRC. The Committee felt that there should be a right of appeal against the time specified by HMRC for a full disclosure. Some also thought that to strengthen safeguards there should be a right to appeal to an independent tribunal against a decision to publish details, in addition to being able to appeal against the penalty decision.
The Committee were concerned that the publication scheme had been bolted on to the new penalty definitions which had only started to be used from 1 April 2009. There had not been much experience in defining the behaviour that represented a failure to take reasonable care as opposed to that which was deemed a deliberate inaccuracy and the Committee thought this could lead to more appeals. HMRC had already issued extensive guidance on deliberate inaccuracies and would be putting in extra checks to ensure behaviours were being correctly identified and applied.
Penalties & Interest - Splitting the legislation over two years
HMRC introduced a paper which covered interactions of the new penalties and splitting the legislation for late filing penalties, late payment penalties and interest harmonisation over two Finance Bills.
HMRC said that having legislated for new penalties in FA2007 and FA2008 with further legislation in Finance Bill 2009, it was now to time to further check the interactions between the new penalties for incorrect returns, failure to notify, late filing and late payment.
HMRC explained that fixed sum and daily penalties are designed to stand alone. The provisions in the FB09 legislation would create safeguards to limit interactions of tax geared penalties by providing that:
- Late payment penalties only apply from 30 days after the extra tax becomes due, except where there is a determination in the absence of a return.
- Where tax-geared penalties for incorrect returns, failure to notify or late filing penalties overlap only the highest penalty is charged.
- As a further safeguard the penalty regimes are designed never to create tax geared penalties that, taken together, exceed 100% of the tax.
Due to the significant information technology and business process changes required, implementation of the late filing penalties, late payment penalties and interest harmonisation would take a number of years. Ministers had therefore decided to split the legislation over Finance Bills 2009 and 2010 allowing HMRC to legislate nearer the implementation date for some of the taxes. However the overarching legislative framework for both penalties and interest reforms had been included in Finance Bill 2009.
During the discussion HMRC confirmed that for each tax the operative date for the late payment and interest provisions would be the same and Finance Bill 2010 legislation would be published in draft later in the year. The Committee suggested that a timeline of when the new penalties and interest becomes operative for each tax would be helpful.
Working with Tax Agents - April 2009 consultation document
HMRC explained that the consultation document was intended to raise issues and ask questions rather than propose definitive solutions. The consultation would run until 7 August 2009.
During the discussion the Committee made the following main points:
- the consultation document had been well written.
- the Impact Assessment only covered UK agents but agents could be operating from anywhere in the world.
- HMRC could recognise those agents who had improved their processes by taking a 'lighter touch' approach or by giving a lower risk assessment for their clients.
- HMRC should have a tiered approach to agents ranging from education and supervision through to prosecution.
- the representative bodies had their own monitoring and quality review processes in place and it would be important to work with HMRC to help inform their own risk assessment process. This dialogue needed to consider the current constraints HMRC had on sharing information and members of rep bodies concerns about their organisations acting as a policing function for HMRC.
- agents not registered with a rep body should be registered under the money laundering rules, this could form the basis of any register.
- definition of a 'tax agent' would be important. For instance would it include a relative who helped someone on a low income as an unpaid tax advisor.
Excise Modernisation and Compliance Checks
HMRC introduced a paper that considered the scope for excise modernisation and a new compliance checks framework for excise, recognising that often the focus would be on checking goods rather than paperwork. The paper set out a broad overview for excise modernisation and a draft of a consultation document chapter on compliance checks.
HMRC's view at this stage was that the current structure for checking the compliance of registered traders worked well. The type of checks carried out for the non-goods based duties such as gambling duties and Air Passenger Duty were similar in nature to those for taxes already covered by Schedule 36 FA 2008 and further extension of Schedule 36 to cover these duties therefore looked sensible.
Devising a compliance checking model for the goods-based excise duties introduced particular challenges. Excise fraud presented a major risk in terms of loss of revenue but was also linked with more general criminal activity and risk to health from dangerous goods. Prosecution in all cases was not an option due to the volume of cases. HMRC therefore needed a civil checking framework that had appropriate safeguards, but allowed HMRC to act quickly to intervene where illicit trading was suspected.
The Committee thought that more explanation was needed in the consultation document as to why excise Duty should have different checking powers to those used to check VAT. Evasion of excise duty poses a higher risk of loss to the Exchequer with excise duty representing a much higher proportion of the end product than VAT which is collected at various stages of the supply chain.
Overall the consultation document should include more about how important the tax take on excise duty is, the historical basis, the need for excise to be a highly regulated area and the benefits of a simpler aligned set of checking rules.
HMRC said that there was very little to report since the first meeting of the implementation oversight forum on 30 March 2009