Attendees: Dave Hartnett, Chair, Stephen Alambritis, Teresa Graham OBE, Penny Hamilton, Mike Hardwick, Liz Lathwood, Adam Little, Chas Roy- Chowdhury, Edward Troup, David Cruickshank, Francesca Lagerberg, Richard Excell.
HMRC: Simon Norris, David McIntyre, Frank Jones, John Shuker, Helen Latham (HMT).
Anthony Leonard QC, Philip Baker QC OBE, Roderick Cordara QC, John Hasseldine.
it was agreed that the minutes would be amended to reflect the importance of simplicity, the discussion about capping penalties and the lessons to be drawn from the international comparisons paper and the request from the Committee to be informed about the work on the possibility of a new management Act was re-iterated. The action points from 6 July had been dealt with.
Francesca Lagerberg had been unable to attend the previous meeting so
would write to Simon Norris (SN) with her thoughts on the matters
discussed.
SN introduced work in progress – if the Committee think HMRC is on the right lines it will be developed further.
HMRC could be seen as setting out general principles it would be hard to disagree with, however, it was necessary to begin to set out these areas in some detail. A number of areas were mentioned that warrant greater consideration.
It was agreed that work by HMRC should reference the need to ensure people
understand that non-compliance is discovered and tackled. Prepopulation of
returns should include information held by HMRC, as well as that obtained
from third parties (for example, tax information relevant to tax
credit claims). Although it is a difficult area HMRC should, where possible,
consult on setting risk parameters to help identify the correct risks. This
could also help with targeting “leverage” exercises. With respect
to safeguards it might be helpful to expand on the difference between private
and business records and on the need for clarity – the ability of taxpayer’s
to understand their position.
It was agreed that tax advisers who facilitated non-compliance should be identified and dealt with robustly. In this context “non-compliance” did not include avoidance. Any Code of Practice would not be effective with such advisers.
A key issue for the area of working with tax professionals was improving
trust between them and HMRC. If there was to be a Code of Conduct it would
need careful wording and well developed ideas, it would not be enough to have
a broad, high level “mission statement” – the nitty gritty
detail would be the important part. An open discussion could lead to new ideas,
it was important to avoid re-running old arguments. The scope of any Code
of Practice, and whether it could be enforced, would also need careful thought
– for example would it apply to lawyers?
It was not yet clear whether, or the extent to which, a Code of Practice
would be something for the Committee to consider. In some areas it would overlap
with the Committee’s work looking at powers (for example, on penalties).
Some areas might be clearly outside the Committee’s work
but others would be grey areas and views might differ – it was recognised
that a dialogue was necessary in these areas so ideas and positions could
be articulated. It may be that some of the areas would then be considered
to be outside the Committee’s remit. There might be scope for 2 Codes
– one for marketed avoidance schemes, another for more routine relations
between HMRC and advisers.
It was suggested that one way of taking the consideration of a Code of Conduct forward would be to look at some real cases in the public domain (for example the recent case of Macdonald v Dextra Accessories Ltd) and set out how HMRC and agents could deal with the implications. Action Point - writing such a paper(s) would be considered by the HMRC team.
SN will be writing to Philip Baker for his views on the human rights question, as he could not attend the meeting.
SN will write to Committee Members detailing who had been invited to the consultation meetings as more professional bodies etc. may want to send a representative. There was a view that although the proposal looked sensible the period for consultation was a bit short (especially as it was during the holiday period) and it wasn’t clear why it had to be done by September.
There was a discussion about how to decide at an early stage whether to pursue prosecution or a civil route. A decision has to be made in each case based on the facts and HMRC then sticks to its decision. To some extent that happens now, even with the Hansard procedure, as facts previously unknown to HMRC can emerge after the challenge.
Under the proposed procedure HMRC would not disclose the details of their
concerns. One view is that detailing concerns would lead to quicker investigations
with less time and money spent on disclosure reports. However, another view
is that the proposed procedure is only for cases of
suspected serious fraud and giving details of concerns would increase the
danger of unknown fraud not being disclosed. Where fraud is concerned the
taxpayer must know what is wrong so it should not be necessary for HMRC to
say what their concerns are.
It was agreed that the Committee would be kept informed of these proposals and there would be feedback on the results of the consultation.
On the proposal for new legislation covering a direct tax related offence of making false statements etc. it was not clear why a new offence was needed – action point - more details needed on this issue. If a new offence is needed the option of a new single offence covering all taxes was preferable if it would allow some offences made redundant to be repealed, especially if section 167(3) CEMA could be repealed.
In general it was thought that having a common procedure was a good idea for the medium term but it was not thought to be an urgent issue. If there was to be a consistent approach using a contract settlement was thought preferable. Although many dealing with indirect tax were comfortable with the use of assessments contract settlements would be welcomed if they would bring increased flexibility and “closure”. For some PAYE issues a contract settlement approach was probably essential to avoid thousands of assessments being necessary.
It was not thought that contract settlements affected taxpayer’s propensity to enter into avoidance schemes. The “downside” to a failed scheme was very important but whether a contract settlement or assessment would be used did not enter into the equation.
The Committee were content with information provided by HMRC.
The consensus view was that PACE powers should be used where possible rather than tax-specific legislation. Tax fraud was a crime like others and wherever possible it should be investigated in the same way using the same powers – why have different powers depending on whether you defraud a private company or the state? It was recognised that this would mean lower levels of authorisation for some powers (and higher for others) as PACE requirements differed from those in some tax specific legislation. It was emphasised that stringent internal controls would be retained.
Although the general proposition is that PACE powers would be used wherever possible, where they did not meet HMRC’s needs (in particular at frontiers) separate powers would still be required and would be retained. It was thought that having separate powers for frontier work would be reassuring to taxpayers and advisers.
Detailed comments on these issues may be forwarded to HMRC after the meeting.
HMRC will prepare detailed proposals for the Committee meeting on 5 September.
The concern with the Writ is that there is no external scrutiny or authorisation – it is all within HMRC at the moment. Doing nothing might be a difficult decision to defend, one view is that the power should be changed to meet new circumstances, new opportunities etc. The option of being able to obtain warrants electronically looked attractive, perhaps with a process similar to that in Canada. In general prior authorisation was thought better than a review after the event.
The practical issues around obtaining warrants electronically were discussed – the need for secure communication, a magistrate to be available etc. It was mentioned that it might take some time to introduce a procedure to get warrants electronically, in the meantime it might be necessary to consider an interim measure, perhaps with some kind of “sunset clause”. Looking at how Canada introduced their new system could be helpful.
HMRC will come back to the Committee with proposals.
It was mentioned that HMRC should give more consideration to taxpayers’ ability to sue for damages where their rights are infringed – this might be more common in the future.
Monday 5 September 2005 (9.30 – 12.30).
