Review of HMRC's Powers, Deterrents and Safeguards

Contents

Background

HM Revenue & Customs (HMRC) inherited ring-fenced legislation for the taxes it administers from the Inland Revenue and HM Customs and Excise. Many taxpayers interact with HMRC across a range of taxes. But the regimes within which they do so differ significantly in design and effectiveness. The current review of HMRC's powers, deterrents and safeguards provides an opportunity to modernise areas that are not working well, such as the lack of focus on promoting behaviours that support compliance, and to address the extra costs to taxpayers that arise from different regimes.

About the Review

The work started in 2005 and is likely to continue for some time. Our aim, developed through consultation is to support those who seek to comply but down hard on those who seek an unfair advantage through non-compliance.

There are five main areas where legislative change to align and modernise rules across HMRC's tax responsibilities has been made or is being considered by the Review of Powers.

Criminal Investigation Powers

Finance Act 2007 (sections 82 to 86 and Schedule 23) included provisions dealing with search warrants, production orders and powers of arrest. These apply the rules in the Police and Criminal Evidence Act 1984 (PACE) to all HMRC criminal investigations. Previously they applied only when investigating criminal offences involving former HM Customs and Excise functions. Some tax specific powers such as the power of arrest in section 72(9) of VATA 1994 have been replaced with the general powers in PACE. PACE does not apply in Scotland. In that case the Finance Act has introduced a set of powers that can be used in criminal investigations in Scotland.

On 30 November 2007 an article on Criminal Investigation powers and safeguards (PDF 42K) was published on the HMRC website. The article was published in response to commitments given during the course of the consultations on the criminal investigation powers included in FA 2007. It describes:

  • the organisation of criminal investigation work in HMRC
  • the criminal investigation powers available to HMRC
  • the training that staff have in the use of these powers
  • the safeguards that apply to the use of the powers

A separate article describes HMRC's criminal investigation policy.

The Serious Crime Act includes provisions that will allow HMRC to use its most potent powers in all its investigations into serious crime.

Civil Financial Penalties

Finance Act 2007 (section 97 and Schedule 24) introduced a single new penalty regime for charging penalties for incorrect income tax, corporation tax, PAYE, VAT & NICs returns. They are expected to apply to tax periods commencing on or after 1 April 2008, where the filing date (or due date) for the return is on or after 1 April 2009.

The new aligned penalty model aims to support those who seek to comply but come down hard on those who seek an unfair advantage from non-compliance. Statutory penalties will be based on behaviour, with no penalty charged for mistakes where the taxpayer has taken reasonable care. Significant reductions will be available for those who make unprompted disclosures, with smaller reductions for prompted disclosures. Penalties will be charged as a percentage of the tax under-declared.

Compliance Checks

On 17 May 2007 the Review of Powers published a consultation document on: A new approach to compliance checks.

The focus was on the way in which HMRC checks whether people have complied with their statutory obligations, primarily to file accurate tax returns or notify HMRC of a liability or register for some purpose.

It recognised that many taxpayers may be potentially liable to between one and four of the current compliance checking regimes that include:

  • Self Assessment Enquiries
  • Employer Compliance reviews
  • VAT assurance visits
  • and informal checks

Debt Management Powers

On 25 June the Review of Powers published a consultation document on: Payments, Repayments and Debt: The developing programme of work. It invited comment on a range of ideas to make it easier for taxpayers to pay on time and improve the way HMRC deals with those who do not.

Taxpayer Safeguards

The policy and practice of the Review of Powers is that when it considers specific tax legislation, it includes a review of the relevant embedded safeguards.

These safeguards may specify:

  • the purposes for which a piece of legislation may be used
  • the conditions that must be met before it can be used
  • who may use it
  • whom it may apply to
  • and any rights of appeal taxpayers may have over its use.

To complement the review of embedded safeguards, on 17 May 2007 the Review of Powers published a consultation called "Safeguards for Taxpayers".

Consultation

The Review of Powers is committed to consulting widely at each stage in the development of policy and legislation. Consultation includes: exploring policy options with the Consultative Committee; publishing documents; holding meetings and workshops with representatives of business and the accountancy and legal professions.

Consultative Committee

In June 2005 Ministers appointed a Consultative Committee to work with HMRC to consider options for future powers, deterrents and safeguards. Membership of the Committee is broad-based to reflect the perspective of the wider community including businesses of all sizes, employees and the tax-related professions.

The Committee continues to meet regularly and to publish minutes on the HMRC website.

Documents Published

Details of all documents published since the Review of Powers was announced in March 2005, including consultation documents and summaries of responses can be found in the List of Published Documents (PDF 55K).

How to contact us

Comments on our work or consultations can be sent to: Review of Powers.