< Go Back House of Lords concerned that HMRC Powers are undermining the rule of law and justice Posted: Dec 4, 2018
Greater powers given to HMRC to
tackle tax avoidance and evasion are undermining the rule of law and
justice, so says a House of Lords report. The Economic Affairs
Committee said HMRC now have some broad, disproportionate powers
without effective taxpayer safeguards and that high penalties, designed to deter taxpayers from appealing, are, in effect, a tax on justice. The committee has demanded a review of the oversight of HMRC and its powers.
Forsyth of Drumlean, chairman of the committee, said: "HMRC is right to
tackle tax evasion and aggressive tax avoidance. However, a careful
balance must be struck between clamping down and treating taxpayers
fairly...Our evidence has convinced us that this balance has
tipped too far in favour of HMRC and against the fundamental protections
every taxpayer should expect." The Committee's report warned that some of the powers "disproportionately affect" unrepresented and lower income taxpayers.
There was also worrying evidence on the government's approach to the new loan charge, which was brought in to combat 'disguised' pay schemes. Under
these schemes, workers were paid by way of a loan, an arrangement that
was intended to avoid tax and National Insurance contributions for the
employee. One case presented to the committee involved a social worker who was made redundant by her local council. She left on the Friday, and on the
Monday was offered a chance to 'rejoin' if she joined an agency and used the scheme. She was re-engaged as a
contractor for five years but at the end of the five years, the council
told her it would re-employ her as an employee, which it did. She was unaware of what was going on and now faces a loan charge equal to probably a year and a half's salary with no means of paying it.The
report recommends that HMRC should urgently review all loan charge
cases where the only remaining consideration is the individual's ability
to pay, and establish a dedicated helpline to give those affected by
the loan charge advice and support. It said action should take place "well in advance" of the loan charge coming into effect in April 2019.
committee has also recommended that Parliament considers how it can
improve the scrutiny of the powers being given to HMRC and oversight of
how it carries out those powers.
Other report findings and recommendations include:
Consideration should be given to
widening the remit of the Adjudicator's Office, and to oblige HMRC to
follow its recommendations The government should withdraw clauses
79 and 80 of the Finance Bill, which would extend HMRC time limits to
assess offshore matters to 12 years The government should withdraw its
proposal, for which consultation closed in October, to remove oversight
of the tax tribunal from HMRC access to information about taxpayers from
third parties Penalties associated with General Anti-Abuse Rule and Follower Notices restrict access to justice, and should be abolished The government should legislate to give the First-tier Tribunal (Tax) the power to conduct judicial reviews. The Treasury should assess whether HMRC is adequately resourced to fulfil its Charter obligations in the next Spending Review.
Of course HMRC is tasked with cracking down on avoidance and evasion, and the loan charge, in
particular, is there to deal with disguised remuneration
schemes that are aggressive tax avoidance structures but, the Committee remains concerned that HMRC's extensive powers are being used inappropriately when it comes to 'ordinary' taxpayers who do not have the ability or means to defend themselves against the determined use of complex legislation by HMRC investigators on a day to day basis. Many practitioners will attest to the increasing use of powers and a willingness to force cases towards a Tribunal Hearing that they know most taxpayers cannot face, or adequately deal with; there is no 'equality of arms' when it comes to dealing with HMRC.
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