Finance (No.3) Bill

Further w ritten evidence submitted by the Association of Taxation Technicians (ATT) (FB01b)

Finance (No.3 ) Bill 2017-19 : Clause s 79 and 80 ( Time limits for assessments etc, offshore matters or transfers: income tax, capital gains tax and inheritance tax )

A. Executive Summary

1. Clauses 79 and 80 increase the time limits HMRC have to make an assessment of income tax or capital gains tax (Clause 79) and inheritance tax (Clause 80) where there is non-deliberate offshore tax non-compliance to twelve years (the ‘extended time limit’) . This contrasts with the current time limits, under which HMRC normally have four years after the end of the relevant tax year in which to issue an assessment, or six years where the taxpayer had failed to exercise reasonable care.

2. For ease of reference, in this submission we have referred to specific provisions in Clause 79. The same observations apply with any appropriate adaptation to the equivalent provisions in Clause 80 for inheritance tax purposes.

3. Our primary concerns are that:

· Unlike the normal assessment time limits, the extended time limit makes no distinction between taxpayers who have taken reasonable care to co mply with their tax obligations and taxpayers who have failed to take reasonable care.

· When looking at whether the extended time limit can be applied, t axpayer - provided information is accorded less importance than that received from overseas tax authorities.

We expand upon these concerns below.

4. We think that Clause s 79 and 80 should be amended to :

· Limit the extended time limit where a taxpayer has taken reasonable care to a maximum of eight years.

· Prevent the application of the extended time limit where a taxpayer has made a full and accurate disclosure in respect of their overseas tax affairs before the expiry of the normal time limit.

B. Distinction between taxpayers who take reasonable care and those that do not

1. The current ‘normal’ assessment time limits make a distinction based upon the behaviour of the taxpayer, being:

· Four years where the taxpayer has taken reasonable care.

· Six years where the taxpayer has failed to exercise reasonable care.

· Twenty years where the taxpayer’s behaviour was deliberate. (Not the subject of Clauses 79 and 80.)

2. Clauses 79 and 80 extend both the four and six-year time limits to twelve years in the case of errors involving offshore tax non-compliance, making no distinction between errors which arose despite a taxpayer taking reasonable care and those which arose because a taxpayer had failed to take reasonable care.

3. This sends a confusing message in two important respects:

· Firstly, it is inconsistent with the general assessing and penalty provisions which place significance on the differentiation between taxpayer behaviours;

· Secondly, it erodes the distinction between the consequences of compliant and noncompliant behaviour, thereby risking the perception of a devaluation of the former.

4. Extending the assessment time limit to twelve years effectively doubles the time limit where the taxpayer has failed to take reasonable care, but triples it where the taxpayer has taken reasonable care. This is inconsistent and involves a disproportionate strengthening of HMRC’s powers against those taxpayers who had taken their tax compliance responsibilities more seriously.

5. We therefore think that Clauses 79 and 80 should be amended so that the extended time limit where a taxpayer has taken reasonable care is limited to a maximum of eight years, being double the current four-year time limit.

C. Status awarded to taxpayer provided information

1. Clause 79 introduces new Section 36A of TMA 1970, which establishes the extended time limit. Section 36A(7) provides that the extended time limit will not apply if:

· before the normal (i.e. four or six-year) time limit which would otherwise apply, HMRC received information from an overseas authority on the basis of which they could reasonably have been expected to be aware of the lost tax; and

· it was reasonable to expect an assessment to be made before that time limit.

2. This restriction on the application of the extended time limit where information is received from overseas tax authorities is welcome. However, we note that there is no equivalent restriction where information is supplied by the taxpayer themselves. As a result, a taxpayer may make a full and accurate disclosure in respect of their overseas tax affairs before the expiry of the normal time limit but still be subject to the extended time limit.

3. It is unclear why information furnished by the taxpayer should be accorded less importance than that received from third parties. If sufficient information is received from the taxpayer in time for HMRC to raise an assessment by the normal deadline, it is difficult to see a policy principle which requires the provision of that information (provided with the taxpayer’s co-operation) to be treated any less favourably than information acquired from a third party source without the taxpayer’s co-operation.

4. Treating taxpayer provided information in the same way as information received from overseas tax authorities would encourage taxpayers to make a full and early disclosure of relevant information to HMRC. Taxpayers would have a strong incentive to provide full and early co-operation if they knew that it protected them from exposure to the extended time limit. HMRC would also benefit from the earlier receipt of that detailed and specific information, speeding up the assessment and collection of the tax due.

5. We therefore believe that the exclusion from the extended time limit in s36A(7) should be extended to also apply where:

· before the normal time limit which would otherwise apply, HMRC received information from the taxpayer on the basis of which they could reasonably have been expected to be aware of the lost tax; and

· It was reasonable to expect the assessment to be made before that time limit.

6. To preserve HMRC’s ability to apply the extended time limit in appropriate circumstances, it could be provided that this exclusion would not apply where a taxpayer was later found to have failed to disclose all the relevant facts or to have made a misleading disclosure. In such circumstances the twelve-year extended time limit (or the twenty-year time limit for deliberate behaviour) would apply.

Note:

The Association of Taxation Technicians

The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.

The Association has over 8,500 members and Fellows together with over 6,000 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.

Association of Taxation Technicians

December 2018