Minutes of Consultative Committee meeting
of 04 April 2006

Attendees

Dave Hartnett (Chair), Stephen Alambritis, David Cruickshank, Mike Hardwick, Penny Hamilton, Derek Allen, Francesca Lagerberg, Liz Lathwood, Philip Baker QC OBE, Peter Gravestock.

HMRC and HMT: Simon Norris, Tom Evans, David McIntyre, Dave Nickolls, Rachel Button, Simon Galloway (Secretary).

Apologies

Richard Exell OBE, Chas Roy-Chowdhury, Anthony Leonard QC, John Hasseldine, Peter Curwen, Roderick Cordara QC

Contents

Welcome to new Committee members

HMRC formally welcomed new members Derek Allen and Peter Gravestock.

The current Consultation Document

The Committee agreed the document covered the issues raised in previous meetings very well. Whilst this breadth of coverage was impressive, the Committee were keen to reach the stage of detailed proposals.

The Committee were encouraged by HMRC’s intention not to penalise taxpayers for honest mistakes.

The Committee highlighted some areas that it felt would be particularly important moving forward:

  • The importance of trained, skilled staff
  • ‘Understanding the proper roles of advisers’
  • Safeguards
  • Europe
  • Areas broader than ‘the taxation of businesses’

There was a brief discussion on the language used in the Consultation Document. The following points were made:

  • The use of the word ‘taxpayers’ in place of ‘customers’ was a welcome return
  • There was no mention of the word ‘avoidance.’ HMRC hoped this would be the starting point for using and sharing some new language which better suited particular circumstances
  • The start of the document made it clear that the review was consulting on areas broader than just tax (including Tax Credits for example) but this could have been brought out more strongly elsewhere

The Committee asked whether a subsequent consultation was planned for specific measures? HMRC said the intention would be to consult on draft clauses.

HMRC assured the Committee that it would be carrying out the usual detailed analysis of responses to the Consultation Document and that it would be happy to report back.

The Federation of Small Businesses suggested that colleagues working on their advice line would be willing to feed in additional information for the Consultation. HMRC were grateful for the offer and were happy to listen.

Appeals

The committee expressed disappointment that changes to HMRC powers would feed into a system for tribunals which is awaiting change, and which would not therefore mirror the new integrated structure of HMRC. The Committee voiced their hope that space could be found for a Bill on appeals as soon as possible.

Safeguards

HMRC is keen to increase the Review’s focus on safeguards in the coming year. A piece of work was proposed to the Committee:

  • To demonstrate the wide variety of safeguards that currently exist
  • To identify areas where there were gaps or where safeguards could be better aligned

HMRC asked for comments as to whether this would be a useful piece of work and if so what areas it might have missed?

The Committee welcomed the work. It identified the following additional areas that HMRC might also consider:

  • Statements and Codes of Practice
  • Extra Statutory Concessions
  • “Fairness”
  • European oversight and complaints to the EU Commission
  • Accountability
  • International conventions – not only double tax treaties but also on handling and maintaining data and computer records
  • Best practice of other revenue authorities and of the OECD
  • Effectiveness
  • Fact sheets (e.g. Tax Credits)
  • Parliamentary Committees
  • Role of MPs

A number of other comments were made by the Committee:

  • HMRC were asked to consider whether Section 29 TMA discovery provisions were consistent with providing taxpayer certainty.
  • The Committee also observed that after cataloguing safeguards there needed to be consideration of their effectiveness, including accessibility in terms of cost.
  • The differentiation in the awarding of costs in Scotland as compared to the rest of the UK was also raised, though it was observed that this had origins in the way in which Scottish law operates.

New Management Act

The Committee emphasised that work on powers and the New Management Act should be fully joined up and asked for assurances this was being done. HMRC gave these assurances. The chair suggested a smaller meeting outside the Committee to provide a more detailed summary.

Work programme 2006 - 2007

HMRC outlined the proposed plan of work for the review team over the next 12 months.

Penalties

The most recent work by HMRC had sought to put recent discussions into a coherent, factual proposal - beginning with statutory definitions and then building penalties around them.

HMRC reported that they have drawn up a sample of cases in order to examine

  • What penalties were applied
  • What penalties would have been applied under new proposals

The resulting data would partly inform whether penalties being proposed were pitched at the right level – as would views from outside the department. HMRC would welcome comments in particular on areas where penalties do not quite work. Was the Committee content with the work being done?

The Committee was content with the proposed sampling and asked for a number of specific points to be considered moving forwards.

The Committee had a number of points to make more broadly on the issue of penalty systems for HMRC to consider:

  • It was agreed that penalising small offences heavily was disproportionate
  • Rights of appeal more generally should be considered in more depth (HMRC agreed that there should be a right of appeal against an offence, a penalty and the size of a penalty)
  • The earlier HMRC can intervene to put right problems the less likely penalties will be required
  • The future of contract settlements

The Committee discussed a number of suggestions from HMRC as to how the non-compliant might be tackled in future. There were no formal proposals or Committee views, but it was agreed that new ideas would be gladly considered.

MTIC

HMRC reported to the Committee on the legislative changes and measures announced at Budget aimed at combating MTIC fraud.

The Committee agreed that MTIC fraud was particularly pernicious and that action to continue to combat it was needed. However the Committee also expressed concerns at the Budget measures. HMRC thanked the Committee for their views.

AOB

The Committee asked for clarification as to whether new interventions might involve penalties in the future?

HMRC said that new, quicker interventions would mean that a penalty position would be less likely to be reached, particularly for direct taxes where the intervention may be ahead of the return being submitted. The department’s best interests were not in imposing and collecting a large number of penalties, but rather with preventing people from incurring them in the first place.

Next meeting: Monday 26th June 2006.