8.HMRC was created by the Commissioners for Revenue and Customs Act 2005. It combined the predecessor tax collection bodies—HM Customs and Excise, and the Inland Revenue—into one. In the early days of the new Department Treasury Ministers launched a review, Modernising Powers, Deterrents and Safeguards (referred to as “the Powers Review”), as the first step in a programme to modernise HMRC’s administrative powers.
9.Ministers appointed a Consultative Committee on the review, which included representatives of tax credit claimants, businesses and tax professionals. A series of public consultations on particular aspects of HMRC’s powers took place. The outcome sought from the Powers Review was broad acceptance for “HMRC to support those who seek to comply but come down hard on those who seek an unfair advantage through non-compliance”. As consultations on discrete areas concluded they informed the drafting of new provisions, introduced in successive Finance Acts from 2007.
10.To ensure effective implementation of the updated powers, which included a substantial training programme for HMRC staff, an Implementation Oversight Forum was formed in 2009. This comprised representatives of business and tax practitioners as well as the Permanent Secretary for Tax and senior HMRC officials. It reported to the Exchequer Secretary to the Treasury for three years until the Forum’s work was considered complete after its 2012 report.
11.At an early stage, the consultations identified a set of design principles to underpin the updated powers, as well as a range of safeguards for taxpayers. These were summarised in its reports (Box 1).
Safeguards for citizens and businesses must be:
Sanctions for non-compliance must be:
12.Implicit in these principles is the duty of HMRC to provide taxpayers with the best possible information on which to make decisions and to understand their implications. If that is not done, the danger of retrospection is created, with taxpayers sanctioned on the basis of rules that were not made clear at the time. In the case of the 2019 loan charge this is what appears to have happened (see chapter 4).
13.The consultations identified the importance of the behavioural aspects of the relationships and approach that HMRC and taxpayers could expect: ‘how’ the powers and safeguards were used was as important as ‘what’ they were. Commenting on the Review’s work programme in 2008 and the intended safeguards for their new powers, HMRC said:
“HMRC’s approach is also intended to create consistency not just in terms of common technical or operational guidance but also in the ways in which its staff act and react in their dealings with taxpayers. The focus of the new powers will be based much more on an understanding of behaviours.”
The Finance Act 2009 introduced the obligation for HMRC to prepare, adhere to and report annually on its compliance with a Charter of standards and values.
14.The first Charter was published in 2009. It was updated in 2016. The 2016 changes increased taxpayers’ obligations and reduced HMRC’s own. For example, it increased taxpayers’ obligations from “keeping adequate records” to “keeping accurate records”, and reduced HMRC’s from “do all it can to keep the cost of dealing with HMRC as low as possible” to “providing an efficient and effective service”.
15.HMRC is required to report annually on its performance against those expectations. This work is overseen by a Charter Committee which reports to HMRC’s Board. HMRC recently announced it would be restructured into a Customer Experience Committee.
16.The Powers Review, with its Consultative Committee, set new standards for consultation on tax matters. Although there were points of disagreement, witnesses generally welcomed the principles. Frank Haskew, Head of the Tax Faculty at the Institute of Chartered Accountants in England and Wales (ICAEW) said “we very much supported that (review) and participated in it. That set the benchmark for a generation in terms of HMRC’s powers.”
17.HMRC’s powers have been extended since the Powers Review completed. These powers have been primarily aimed at tackling tax evasion and tax avoidance in response to the demand to increase tax revenues and reduce the tax gap.
18.The new powers included:
19.Witnesses overwhelmingly supported the principle of the Government’s increased efforts to tackle tax avoidance and evasion since the Powers Review. Parliament has rightly pressed HMRC to reduce the tax revenue lost due to avoidance and evasion. The House of Commons Public Accounts Committee has published 15 reports on the matter since 2012, and the Treasury Select Committee’s Sub-Committee has an inquiry ongoing. We published a report considering tax avoidance by multinational corporations in 2013.
20.In 2016/17, HMRC estimated that tax avoidance cost the UK £1.7 billion and evasion cost £5.3 billion. The avoidance tax gap has reduced from £4.9 billion since 2005/06.
21.The distinction between different taxpayer behaviours seems to be blurring. The Powers Review established three different categories of taxpayer behaviour: the taxpayer who was doing their best to comply but might make innocent errors; the taxpayer who made errors because they failed to take reasonable care; and the taxpayer who deliberately sought to evade tax. This led to correspondingly different but proportionate levels of penalties and sanctions.
22.HMRC provides the following definitions of tax avoidance and evasion:
“Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.”
“Tax evasion means fraudulently evading or cheating HMRC of tax that is lawfully owed. It does not include making a mistake about the tax that is owed: it requires dishonesty.”
23.We heard that in practice tax evasion and avoidance are too often conflated. Keith Gordon, a barrister at Temple Tax Chambers, said “avoidance is an inherently vague term”. Malcolm Gammie QC added “tax avoidance and evasion are grouped together … what is implicitly being suggested is the aggressive end of avoidance”.
24.For example, users of disguised remuneration schemes were troubled when the schemes were called “illegal” by the Chancellor of the Exchequer and the Financial Secretary to the Treasury. HMRC has not claimed that these schemes are illegal; rather that they are not effective, and have never been effective, in reducing an individual’s tax liabilities. This position is disputed by users of such schemes.
26.However, the Government’s approach does not appear to discriminate effectively between the full range of behaviours and circumstances it describes as tax avoidance. There is a clear difference in culpability, for example, between deliberate and contrived tax avoidance by sophisticated, high-income individuals, and uninformed or naive decisions by unrepresented taxpayers. Clearer distinctions are needed in the Government’s approach and rhetoric towards tax avoidance.
27.Tax professionals have raised concerns that the new powers of HMRC have disrupted the balance achieved by the Powers Review. Several witnesses described instances of “mission creep”, with powers which were initially limited subsequently being extended more widely (for example, the Disclosure of Tax Avoidance Schemes provisions (‘DOTAS’), and “naming and shaming” provisions).
28.In contrast to the principles in the Government’s Tax Consultation Framework, these new powers have often been introduced with limited consultation. The Chartered Institute of Taxation said that the pace of expansion has hindered effective evaluation of the new powers.
29.Many of the post-2012 powers were introduced following criticism from Parliament and the media of HMRC’s approach to tax avoidance and tax evasion. Tax professionals agreed that there was a need for action in these areas, especially against the more artificial forms of avoidance and evasion. But there was concern about the gradual accretion of powers over the last few years without any apparent oversight. The Chartered Institute of Taxation (CIOT) said:
“Many of these new powers are being introduced in a piecemeal fashion (sometimes at odds with settled principles) and often inadequate consultation. The constant flow of new and strengthened powers has not allowed for a full evaluation of their overall efficacy.”
30.Several witnesses thought that many of the powers were disproportionate. Jason Collins, a partner at Pinsent Masons LLP, told us: “you do not really need such aggressive powers with people who are culturally quite compliant generally.” The most frequently raised examples of disproportionate powers were Accelerated Payment Notices and Follower Notices, in particular the lack of a right of appeal against these notices. While a taxpayer may make representations to HMRC against such a notice, they cannot appeal to the tax tribunal.
5 HMRC, Review of HMRC’s Powers, Deterrents and Safeguards (archived 17 February 2013): [accessed November 2018]
7 HMRC, The Forum to Oversee the Implementation of new HMRC Powers, Deterrents and Safeguards (February 2013): [accessed November 2018]
9 Finance Act 2009,
11. HMRC, Your Charter Annual Report April 2017–March 2018 (12 July 2018): [accessed November 2018]
12 The membership of HMRC’s Board can be found here:
13 HMRC, Your Charter Annual Report April 2017–March 2018 (12 July 2018): ; HMRC, Our Governance: [accessed November 2018]
14 (Frank Haskew)
15 Follower Notices are used by HMRC to ask a taxpayer to settle their tax affairs. They are issued by HMRC when a taxpayer’s involvement in a tax avoidance scheme with the same or similar arrangements to one challenged successfully by HMRC has been identified. If a taxpayer does not settle their affairs, they may be liable to pay a penalty. An Accelerated Payment Notice (APN) is a requirement to pay an amount on account of tax or National Insurance Contributions (NICs). HMRC issues APNs to taxpayers involved in avoidance schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, or counter-acted under the General Anti-Abuse Rule (GAAR). They can also be issued to taxpayers who have received a Follower Notice in relation to the scheme.
16 The ‘requirement to correct’ requires those with undeclared offshore tax liabilities (relating to Income Tax, Capital Gains Tax or Inheritance Tax for the relevant periods) to disclose those to HMRC on or before 30 September 2018.
17 Written evidence from Association of Accounting Technicians (), ICAS (), and ICAEW ()
18 House of Commons Public Accounts Committee, ‘Taxation: a key area of focus’: [accessed November 2018]
20 Economic Affairs Committee, (1st Report, Session 2013–14, HL Paper 48)
22 HMRC, Review of HMRC’s Powers, Deterrents and Safeguards (archived 17 February 2013): [accessed 26 November 2018]
23 HMRC, Tax avoidance: an introduction (6 September 2016): [accessed 21 November 2018]
24 HMRC, Tell HMRC about a company helping people to evade tax (29 September 2017): [accessed 21 November 2018]
25 Written evidence from Keith Gordon () and (Malcolm Gammie)
26 The Rt Hon Mel Stride MP, 3 July 2018, ; The Andrew Marr Show (28 October 2018)
27 HMRC, HMRC issue briefing: disguised remuneration charge on loans policy paper (18 July 2018): [accessed November 2018]
28 Institute for Fiscal Studies, The implications of recent additions to HMRC powers and the shifting balance in the relationship with taxpayers (November 2017): [accessed November 2018]
29 (Charlotte Barbour), (Lydia Challen and Malcolm Gammie) and (Jason Collins)
30 These provisions have since 2004 required taxpayers entering into tax planning arrangements with certain features or hallmarks to notify them promptly to HMRC, which results in HMRC issuing a ‘Scheme Reference Number’ which the taxpayer then has to notify on their next tax return. The original arrangements were extended in 2005, 2006, 2007, 2011 and 2013 and are the basis for provisions to apply such as Accelerated Payment Notices and the General Anti-Avoidance Rule.
31 These provisions have since 2009 permitted HMRC to publicise the names and business addresses of ‘deliberate defaulters’, where the tax involved exceeds £25,000, and since 2017 for some who persist in getting involved in serial tax avoidance arrangements which are defeated.
32 HM Treasury and HMRC, Tax Consultation Framework (March 2011): [accessed November 2018]
33 Written evidence from the Chartered Institute of Taxation ()
34 (Charlotte Barbour, John Cullinane, Frank Haskew)
35 Written evidence from the Chartered Institute of Taxation ()
36 Written evidence from LITRG (), CBI (), and Serocor Group ()
37 (Jason Collins)
38 Written evidence from Keith Gordon (), Pinsent Masons LLP (), Dow Schofield Watts (), and (Lydia Challen)