HMRC aggression and heavy handed use of powers

hmrc Aug 27, 2018

There is no doubt that the Government is putting pressure on HMRC (HM Revenue and Customs) to improve its tax collection rates.

Recently, it launched a consultation, very quietly it should be noted, into a proposal to increase HMRC information-gathering powers while removing some of the protections for those on the receiving end.

Justified as a measure to bring HMRC’s powers into line with those in other countries, the proposal would allow HMRC to demand tax payers’ bank account and other financial information without first having to get the permission of the Tax Tribunal.

Under one of a number of options in the consultation document, Amending HMRC’s Civil Information Powers, the information orders requesting this sensitive financial information could be demanded not only from banks but also from building societies, accountants, lawyers and estate agents.

Furthermore, these institutions could be banned from informing their clients that they have been ordered to provide the information and there would be no right of appeal.

The consultation closes on October 2, 2018 and already there has been criticism that if these powers were granted HMRC would be likely to use them more frequently than can be justified, despite assurances that they were not expected to be used in more than “a few hundred cases”.

This is an alarming development given that HMRC has already been seen to be increasing its willingness to litigate, according to the CIOT (Chartered Institute of Taxation), which has raised its concerns with the Government’s Treasury Sub Committee.

CIOT notes in its submission that there is already “an overwhelming number of cases in the tax tribunal system”.

It also argues that often these cases are about HMRC’s “categorising genuine errors as carelessness, or carelessness as dishonesty” and that there is a better alternative in resolving disputes via ADR (Alternative Dispute Resolution).

There is also concern about the cost of defending such claims where HMRC is likely to adopt an attrition strategy to force settlement without them having to prove their claim as this will be the only way for recipients to avoid incurring the significant costs of defending a claim.

The fightback against HMRC aggression

The law firm RPC has been monitoring legal challenges to HMRC for some time and reports that there has been a 184% increase in judicial reviews against HMRC in the last three years. The increase was 36% in 2017 alone.

According to RPC these judicial reviews generally relate to claims that HMRC has overstepped its authority or acted unfairly often because of its increase in the use of APNs (Accelerated Payment Notices) demanding payment of tax within 90 days without the right of appeal, where the recipients are suspected of tax avoidance.

RPC reports that many such cases are caused by “simple errors” by HMRC and a “dogged refusal to correct them”.

The costs of defending such claims are generally huge and unrecoverable.

Given the alarming proposals outlined above and the reported increase in HMRC’s willingness to pursue cases through the courts it would be no surprise if beleaguered SMEs already under pressure also turned to the courts for help.

It all seems like your house having burnt down and then having to spend years in court to pursue your claim.

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