Modernising powers, deterrents and safeguards

Meeting of the Consultative Committee Friday 17 November 12 noon

Attendees: Dave Hartnett (Chair), Stephen Alambritis, Roderick Cordara QC, David Cruickshank, Peter Gravestock, Penny Hamilton, Mike Hardwick, , Francesca Lagerberg, Chas Roy-Chowdhury, Philip Baker QC OBE, Mike Templeman, Derek Allen, Professor John Hasseldine and Angela Roach (Secretary)

Invitees: HMRC and HMT: Simon Norris, Howard Connell, Martin Stribblehill, Luke Liddiard, Carolyn Parmeter and John Shuker.

Apologies: Peter Curwen (HMT), Richard Exell OBE, Anthony Leonard QC, Lawrence Longe, Ian Menzies- Conacher, Patrick Clarke and Tom Evans.

Minutes and Action Points from 16 October Meeting

1. There were no outstanding action points.

New Interventions Trials Update

2. DH explained that the first phase of the New Intervention trials had finished. Lessons had been learnt from the first phase and they had shown that Interventions would increase efficiency and effectiveness. For the non-represented taxpayer it would reduce their encounter with HMRC from 13 months to several weeks. A new approach was underway where HMRC would be undertaking an evaluation in consultation with representative bodies plus workshops where representative bodies would be able to nominate people to attend.

3. The Committee thought new interventions were something worth exploring but should not be rushed. They added that training issues were a concern and stressed that the remedy lay with both HMRC and the professions. HMRC wanted to reassure the Committee that they had already started work to drip-feed the messages about cultural change to HMRC staff. For instance a slot at three internal conferences covering about 350 senior compliance staff this autumn had stressed a more proportionate and behaviourally based approach.

Feedback from the Workshops with Representative Bodies

4. HMRC provided the Committee with feedback from the series of workshops held in September and October. They covered improving compliance interventions in the short-term under existing powers; the new penalties model which the Committee had helped develop; and options for a new suite of intervention powers. HMRC were grateful to those organisations who participated.

5. HMRC recounted the overall themes from all four workshops:

  • Delegates strongly supported the aim of the Review of Powers – that HMRC should support those who seek to comply with their tax obligations but come down hard on those who seek an unfair advantage though deliberate not compliance and were keen to test all proposals against this statement.
  • HMRC needed to be more flexible in its interactions with taxpayers, tailor its actions so that they were proportionate to the taxpayer’s affairs and likely risks.
  • HMRC needed to be more open and clear about their use of powers, what taxpayer’s obligations were and what were the relevant safeguards. Publicity and guidance were needed to be used to make sure people know what was expected of them.
  • Overall delegates were positive about the proposals put to them.

6. HMRC reassured that the comments would be taken forward , subject to Ministers’ view and the next step would be to publish the feedback on all the workshops. Further consultation documents on penalties and on interventions would follow which will reflect the points made at the workshops.

7. A Committee member had attended the workshops and was very impressed with them. They thought they were effective and interesting. It was an opportunity for attendees to express their views and for HMRC to get a quick response. Although there were concerns about how the views would be taken into account. Proposals put forward at the Penalties workshop had caused some concern, in particular three aspects:

  • Naming and shaming.
  • Imposing a penalty in a failure to take reasonable care situation involving an ‘input & output tax’ situation where no overall loss arises.
  • Imposing a penalty where a loss has been overstated.

8. HMRC assured that:

  • HMRC would not be taking forward naming and shaming at this time;
  • the definition of ‘failure to take reasonable care’ was being discussed and HMRC was taking full account of further feedback on definitions from the representative bodies;
  • external feedback from the March 2006 Consultation document was scant about losses, therefore this would be consulted on further.

Criminal Investigations Consultative Document Update

9. HMRC introduced this item stressing this was the first overview of responses as they were still coming through even though the deadline had passed.

10. HMRC explained that the Consultation document had been published on 9 August 2006 with a consultation period ending on the 1 November 2006. There had been 27 external responses to date including some from the major representative bodies.

11. The main points covered were:

  • The majority supported adoption of Police and Criminal Evidence Act 1984 (PACE) and developing new powers for Scotland but some wanted more details on particular issues or suggested different approaches on detailed points.
  • Some respondents did not think HMRC should carry out any criminal investigations and they should be carried out by the police, SOCA or some other body.
  • A few respondents had called for an independent review.
  • Some queried why Proceeds of Crime Act 2002 (POCA) and Revenue and Customs Prosecution Office (RCPO) powers were not covered.
  • There was a mix of views about whether HMRC had made a strong enough case for the suggested changes.
  • There were concerns as to whether the criminal investigation powers could be used in civil investigations. More details were asked for about how HMRC’s internal organisation ensured that different officers carried out civil and criminal work.
  • Most of those who did support the proposals but wanted reassurance that proper training was given to HMRC staff. Similarly, those who opposed expressed the view that this was vital if the powers were to be extended.
  • The issue of search warrants by judges or magistrates: some thought the proposals would lead to all being issued by magistrates but HMRC assured this was not what the proposals would do.
  • All respondents welcomed an increase in safeguards in the condoc.


12. HMRC explained the responses were being carefully considered and a meeting would be offered to respondents, including representative bodies, to discuss the points they raised. HMRC stressed that no decisions had been made and a summary of responses will be published, subject to Ministers, which would address and answer some concerns and questions made.

15. The Committee raised concerns about potential reduction in the level of judicial scrutiny as a result of extending the PACE. They suggested that the need to consider the position before an offence has been committed may be unnecessary as conspiracy charges should usually be in point. The Law Society welcomed a meeting to discuss certain issues.

16. The Committee questioned the decision for HMRC to handle criminal matters. Regard should be also given to how other countries handle this area and human rights issues.

Action: HMRC to arrange meetings with Committee members plus other representative bodies

Encouraging Online Filing

18. HMRC wanted the Committee’s views on one aspect of the developing strategy to encourage and require online filing of tax returns. They particularly wanted the Committee’s views on whether HMRC should consider a penalty when encouragement had failed and a business that had been mandated to file online had submitted a return or form on paper.

19. Members of the Committee made the following comments:

  • There were concerns that the paper lacked a properly customer focused approach and some social research needed to be taken into account.
  • The title of the paper was misleading because if HMRC wanted to encourage online filing there must be an incentive. For there to be a change of behaviour there needed to be some carrots.
  • The international view should be looked at e.g. what had been learnt from the IRS when they went on-line in the USA? HMRC assured the Committee that HMRC had useful and ongoing contacts with the IRS.
  • There was a general view that the paper made huge assumptions about the capacity of HMRC IT systems to work without any problems. Potential difficulties with current IT systems should not be underestimated. It was essential that any new systems must be confidential.
  • On the question of the appropriate response to not filing online (when mandated to do so) the committee expressed a number of different views. These included that taxpayers should not be penalised just because the information was in the wrong form if it was complete and correct. Equally it was also noted that penalties could be one option (as long as the IT systems worked well) but that penalties for filing in the wrong format should be less severe than penalties for failure to file at all since the behaviour was less culpable. Some members wondered whether rejecting paper submissions would be an option.
  • Consideration also needed to be made to those taxpayers who were not IT literate and therefore would need support not penalties.
  • The Committee appreciated that there were potential savings for HMRC and a good reason to move towards electronic filing including receiving the information in a certain format. Other organisations had similar requirements e.g. visa application forms.
  • However, if there were a penalty it was suggested that :
    • There needed to be a transitional period with no penalty;
    • Penalties should be proportionate and perhaps linked to additional HMRC admin costs ;
    • HMRC should consider whether there was a need for carve outs from any penalty regime (or requirements to file online) for the smallest businesses including employers with one employee (PAYE applies) such as parents with nannies or home helps.
  • The Committee raised a question about the obligations on a government department to communicate how facilities would work and the help available and suggested that the Low Income Reform Group should be consulted on this.
  • In considering the options some members of the Committee felt that a small penalty or charge might be considered to be a proportionate response by taking into account the additional cost of processing paper submissions but did not like the thought of a tax geared penalty. Complex businesses had complicated tax returns and therefore those businesses needed to know what they needed to do to comply and how the extra information could be handled.
  • There were some concerns that rejection of returns made in the wrong medium would have an adverse impact on HMRC/customer relationships.

20. HMRC assured the Committee that the paper dealt with only a small aspect of Lord Carter’s work. Lord Carter had made a number of recommendations around testing of systems, support for customers and working collaboratively with taxpayers, agents and software developers. In addition the Carter programme was determined to be Customer orientated and to design improvements to our services “from the outside in”. A large amount of consultative work is already going on to understand customers’ needs and priorities. The consideration of penalties was only a very small part of Lord Carter’s work. Over the next two years HMRC would be focused on working with representative bodies and stakeholders to test the system. HMRC noted that the mandation of online fling was being phased in; for example, VAT traders in the less than £100,000 bracket would be able to continue as currently until at least 2012. HMRC projections were that use of IT would be near universal for businesses with turnover in excess of £100,000 by 2010. HMRC would continue to monitor the IT literacy of smaller businesses and that research would inform decisions about whether and when to require traders with turnover under £100,000 to file online.

21. HMRC concluded that this was an area that clearly warranted further input from the committee, therefore, they would bring this issue again to the next meeting.

Action: HMRC to discuss again at the next meeting.


Next meeting: 14.00 until 17.00 Thursday 15 February 2007 in HM Treasury Boardroom: 1 Horse Guards Road.