Attendees: Simon Norris (Chair), Derek Allen, Philip Baker QC OBE, Peter Gravestock, Penny Hamilton, Professor John Hasseldine, Francesca Lagerberg, Mike Templeman, Chas Roy-Chowdhury, Tina Riches, Angela Roach (Secretary)
Invitees: HMRC and HMT: Rachel Button, Patrick Clarke, Jim Ferguson, Simon Habesch, Neil Johnson, Luke Liddiard, Stephanie Allistone
Apologies: Mike Hanson, Stephen Alambritis, David Cruickshank, Roderick Cordara QC, Mike Hardwick, Lawrence Longe, Ian Menzies-Conacher, Peter Short (HMT)
Compliance Checks: Visits to business premises
Civil Penalties: Third Party provisions (Schedule 40 Finance Bill 2008 para 1A)
Both of these action points were covered in item 2 ‘Consultation document responses – updates’.
HMRC introduced this paper highlighting the initial views from responses received on the three published documents the deadline for which was 6 March 2008. The details were as follows:
Thirty-eight individuals or organisations responded to one or more consultations. The totals of written responses to each document were:
HMRC pointed out that there were two main issues which went across all three consultations that caused concern. They were:
a) More safeguards should have been included in primary legislation as opposed
to putting them into guidance or codes of practice.
b) Concern was expressed about the implementation of the new legal frameworks
and HMRC’s ability to ensure that their staff were properly trained,
recognising that they would need to work differently.
HMRC explained for item 1 that more safeguards had been included in the legislation than was previously the case. However, the nature of some issues meant it was too difficult to put them into primary legislation: guidance and Codes of Practice needed to be clear and capable of change to reflect changing practice if they were to be effective.
The Committee made the following points:
HMRC described responses for each of the consultation documents as follows:
The extension of penalties for incorrect returns was generally welcomed and described as ‘sensible’, ’fair’, ’reasonable’ and ‘appropriate’. Some had noted that Tax Credits had not been included and suggested they should be. HMRC said the Tax Credit penalty regime had recently been reviewed and amended to broadly reflect the principles described in the consultation document.
HMRC highlighted AP2 from the last Committee about penalties: HMRC to consider if the drafting needed tightening on ‘withholding information’ for the third party provision. The scope of the penalty on third parties for deliberately falsifying or withholding information from a taxpayer, had been narrowed so that HMRC had to demonstrate that the third party did so intending to cause a tax return to be inaccurate. Also HMRC added that guidance on ‘reasonable care’ would be expanded to deal with the different taxes, levies and duties.
For failure to notify the proposals were broadly welcomed and particularly the idea of tying the penalty to tax lost as a result of a failure and the removal of the £100 fixed penalty for non-registration for Class 2 NIC. Also as a result of the consultation the proposed legislation had been modified to allow a reduction to nil, where the taxpayer makes a full unprompted disclosure of failing to notify a new taxable activity, within 12 months of when tax first became unpaid as a result. Consideration of a suspended penalty, in light of future behaviour, had been postponed until next year to consider alongside reform of late filing and late payment penalties. It was also pointed out that there would be a need to ensure that where there was both a failure to notify and consequential late payment, HMRC should not doubly penalise the taxpayer. Almost everyone who commented supported a single reasonable excuse provision.
In general respondents applauded efforts to design an aligned framework for record keeping, information powers and time limits across IT, CT, VAT, PAYE and NICs. Aligned time limits were particularly welcomed but acknowledged that there were concerns about rights to make visits.
AP1 point from the last meeting: HMRC to follow up HRA concerns regarding visits without prior arrangement to business premises. Following a review, the legislation on the right of entry has been redrafted. HMRC officers retain the right to enter premises, which would reassure taxpayers that they were doing the right thing in giving HMRC officers access to premises, and protected them against claims from third parties or other regulatory bodies where access had been given inappropriately. But the power would not now have a sanction attached and this would be made clear when arranging visits. Separately, there would be an externally authorised power of entry. Where entry was refused after such authorisation had been given the taxpayer could become liable to the financial penalties. HMRC did not expect to use this power extensively.
The Committee acknowledged that the external authorisation was a big improvement. But they remained concerned about unannounced visits generally, particularly to business/private premises and questioned what the purpose was without a sanction. HMRC stressed for a home visit there must be a business use involved. They added that changes had been made so that there was internal authorisation for ‘unannounced visits’.
The Committee made the following points:
Most responses favoured the broad thrust of the package and the general aim of removing inconsistency. There was support for the proposals for setting off repayments against debt but concern about insufficient safeguards in the legislation. Draft legislation would be changed to make explicit HMRC’s undertaking that when making a set-off HMRC would honour the assignment of repayments to charities under the SA Donate Scheme. Payment by credit cards was welcomed and collecting debts through the PAYE system was generally viewed as favourable. HMRC advised that the latter measure was being deferred to allow more time to ensure that the correct processes were in place.
It was an opportunity missed to examine Legal Professional Privilege (LPP) which both the USA and Australia had reviewed. They believed it was only a matter of time before it was tested in the EU Courts.
They favoured the publication of a ‘route map’ to help with the general understanding of the Review. It would make it easier for people to see how all the pieces fitted together. HMRC said that Ministers were the ultimate decision makers and what the Review did in any year would be subject to their priorities.
AP1: Committee’s views on consultation period to be passed
to Ministers
AP2: Examples to be drawn up for pre-return visits for HMRC’s communication
strategy
AP3: HMRC to take advice about publishing a ‘route map’ for the
Review.
HMRC introduced both papers saying as these papers interacted so it seemed sensible to discuss them together. The issues on late filing were very similar to those on late payment: there was a need to increase clarity and simplicity and for HMRC to influence behaviour. The interest paper gave an update on the progress being made on working towards a harmonised interest regime with the intention to consult. HMRC was looking on interest as recompense rather than as a penal sanction.
The Committee made the following comments:
HMRC asked the Committee if there was anything else that could be done apart from sanctions:
The Committee asked what was happening about ‘penalty interest’
for aggregates levy and insurance premium tax. HMRC confirmed that these would
be considered as part of the work on late payment penalties.
The Committee thought there should be a clear financial rate and preferably
one rate for both HMRC and the taxpayer. HMRC recommended carrying out international
comparisons.
The Committee favoured that the late filing and late payment should be published as one consultation document.
HMRC updated the Committee on the issues shared with the Committee at the 19 September 2006 meeting and included in the consultation document published on 25 June 2007.
Next meeting: Thursday 3 July 14.00: G/16: Ground Floor: 1 HGR
