Dave Hartnett (Chair), Philip Baker QC OBE, David Cruickshank, Mike Hardwick, Penny Hamilton, John Hasseldine, Francesca Lagerberg, Liz Lathwood, Chas Roy-Chowdhury, Edward Troup.
HMRC: Simon Norris, Tom Evans, David Stephens, Frank Jones, John Shuker, John Burey, David Pruden, David McIntyre, Simon Galloway (Secretary).
Roderick Cordara QC, Stephen Alambritis, Richard Exell OBE, Theresa Graham OBE, Adam Little, Anthony Leonard QC, Helen Latham.
It was observed that adopting PACE powers for England and Wales would emphasise an important point of principle endorsed by the committee – that tax crime is just like any other crime and should be treated as such.
But difficulties in applying PACE powers to Scotland would result in a different criminal system for different parts of the UK. This suggested that a separate code adapted from PACE that applied across the UK would be a realistic alternative. This would also allow criminal powers to be tailored more specifically to tax crime.
The committee noted that any separate code would have the disadvantage of being subject to more debates around the detail. The committee also observed that with separate codes there would be a risk that these diverge over time.
It was further noted that it would be possible for HMRC to adopt lesser powers now which could be strengthened later if the powers proved to be inadequate. A particular reason for this suggested by the committee was a risk of abuse inherent with having powers on the statute books.
In summation, the committee agreed it was difficult to reach a consensus on both the issue of whether to adopt or adapt PACE.
The committee considered the power of arrest for HMRC officers. It was suggested
that it might be beneficial for HMRC to separate out issues relating to drugs
and frontiers work from “core” tax affairs, and apply only powers
necessary to each in order to carry out the work of the department.
8. Points raised in discussions included
HMRC responded that the police would be reluctant to take up existing arrest
work in ex Customs cases. HMRC officers who currently carry out such arrests
were viewed as well trained, and indeed were better placed to do it than the
police in circumstances that applied to the work of the department. It was
not the case that inexperienced and incapable officers carried out this work
currently. There were occasions when HMRC requested the presence of a police
officer though they tended to be restricted to early morning instances where
a breach of the peace was possible.
The committee agreed that RIPA should apply to direct tax work, having been assured on the stringent procedures and post authorisation reviews that apply to all use of these powers.
HMRC outlined current thinking to the committee, which had been informed by their direction.
HMRC suggested that where people have made a mistake but taken sufficient care there will be no penalty. Penalties would be taken where there had been a lack of care or an unacceptable tax position had been taken. Significantly higher penalties would apply to deliberate under-declarations or over-claims.
It was suggested that the proposals were now very focussed on disclosure, and that a result of this was that further mitigations for co-operation might no longer be appropriate, especially since the compliant taxpayer would expect co-operation to be the norm.
The committee thought that proposals should help change the mindset of staff, discouraging pursuit of the smallest penalties and moving resources to pursuit of serious tax evasion. Re-training would also be needed in order to effect this change.
The committee expressed satisfaction at the way HMRC’s thinking had progressed in an area already noted for its ‘radical’ approach.
A particular issue that was not yet clear was the matter of what constituted ‘reasonable care.’ This should give regard to a taxpayer’s circumstances and the resources at their disposal. The committee also asked HMRC to consider where a tax position may be complex but relatively small in terms of consequence.
The committee expressed concern over scope for applying penalties to tax chargeable on understatements before losses had been factored in. It was suggested that this did not consider the actual economic loss. HMRC responded that the issue driving this was group relief but agreed to give more thought to this point.
The committee asked HMRC to give consideration to interaction of the penalty framework with leverage exercises.
The committee also asked HMRC to give more thought to cases where agents who were not up to date with case law have advised taxpayers, and what the implications of this might be.
HMRC noted the committee’s observation that the proposed penalty framework encouraged taxpayers to consult both tax advisers and HMRC’s own guidance. HMRC recognised that more contact from taxpayers seeking advice might be one of the consequences of the new approach and that it would be necessary for the operational side of HMRC to be able to cope adequately with the greater number of enquiries. But if that raised the accuracy of returns it would not be a bad thing.
The committee was content with the brief summary provided by HMRC on the results of random enquiries. This picked up an action point from a previous meeting.
Monday 17th October 2005
