31.This chapter considers two proposed new additions to HMRC powers:
32.The consultation on this proposal presumed the need for an extended period and did not discuss the choice of 12 years. The justification given was that it takes longer to resolve tax issues relating to offshore matters because of the time needed to acquire information from overseas and enquire into complex arrangements. HMRC said:
“This [complexity] combined with the difficulty in proving deliberate behaviour, means HMRC has a compressed period in which to establish tax due before it passes out of time for assessment … The result is that there are often cases where HMRC considers there is more tax unpaid in respect of earlier years, but is unable to collect it as it is too late to make an assessment.”
33.Witnesses disagreed with this assertion. Pinsent Masons LLP said, “it can take longer for HMRC to establish the facts when a complex offshore structure is involved. But these powers will also apply where a complex structure is not involved or where the tax at stake is small.” The Low Incomes Tax Reform Group (LITRG) agreed:
“HMRC seem to assume that individuals with overseas accounts are wealthy and sophisticated people. In fact, many are elderly people on low incomes who have small amounts of either taxed interest from foreign bank accounts or foreign pensions.”
They told us that 10 per cent of current enquiries dealt with by the charity Tax Help for Older People were on this issue.
34.The Common Reporting Standard is a global reporting requirement for financial institutions, aimed at enabling automatic exchange of information between governments to combat tax evasion. Now that the Common Reporting Standard has been adopted by over 100 countries, it should be more straightforward for HMRC to obtain any information it needs from overseas tax authorities. Keith Gordon, a barrister at Temple Tax Chambers, said, “HMRC are currently receiving an unprecedented amount of information from many overseas tax authorities. Accordingly it is hardly the time to say HMRC needs more time to investigate overseas matters.” He speculated that, “I suspect that the Revenue is absolutely inundated with material from overseas and does not have the resources to deal with it, and the only way of escaping its resource problem is expanding the time limit to catch taxpayers”. Similarly ICAS said, “The main driver behind this proposal (and others) to extend time limits appears to be inadequate HMRC resources.”
35.It is also unclear how the period of 12 years was arrived at. There was no consideration in the consultation of alternative time periods. Setting a time limit is designed to give taxpayers certainty about their tax affairs within a reasonable period. The normal time limit for assessments for income tax and capital gains tax is four years. This is extended to six years where a taxpayer has failed to take reasonable care and to 20 years where there is deliberately non-compliant behaviour amounting to fraud. For inheritance tax the limit is four years.
36.The evidence we received emphasised that these time limits should be sufficient for both offshore and onshore matters. Victoria Todd, head of LITRG, said, “We feel that the current timescales—four years and six years—are reasonable.” Keith Gordon said that “the current time limits represent a true and fair balance and should not be tampered with.” Malcolm Gammie said, “The question is whether 12 years is proportionate, and I would say it is not.” ICAEW and CIOT agreed with this principle.
37.The proposals would treble the normal time limit for compliant taxpayers and double the limit for those who fail to take reasonable care. In doing so it would remove the distinction between fully compliant and careless taxpayers, which makes the existing time limits proportionate. LITRG said:
“This moves the balance of power even further in favour of HMRC, and seriously undermines the fundamental right of any honest taxpayer to closure after a reasonable time.”
38.Under the proposal, all those with offshore elements to their tax affairs would have to wait for a lengthy period before they can achieve certainty and matters are finally settled. In the meantime, they would have to retain records to deal with any questions HMRC may ask. The longer after the event a question is raised, the more burdensome it would be for taxpayers to find the answer.
39.The Association for Taxation Technicians (ATT) suggested the legislation be amended to exclude from the extended time limit taxpayers who have made all the necessary information available to HMRC at the appropriate time. Subsection (7) of clause 79 of the Finance Bill contains an exclusion for situations where HMRC has received the information it needs from an overseas tax authority within the normal time limits and could make an assessment within those time limits. There is no equivalent provision for the situation where the information has been provided by the taxpayer.
40.Other bodies suggested other ways of restricting the impact of the measure, such as a de minimis limit.
41.This proposal places burdens on all those with offshore elements to their tax affairs to retain records for long periods of time to deal with potential HMRC questions. HMRC already has a 20-year time limit to deal with fraud. We consider the extension of time limits to 12 years for offshore matters unreasonably onerous and disproportionate to the risk.
42.It is difficult to understand why this measure has been introduced now. We see no logic in applying an exclusion from the time limit to situations where information has been supplied by overseas tax authorities, but not where that same information has been supplied by the taxpayer.
43.It is wrong if, rather than funding HMRC sufficiently to conduct offshore enquiries in a timely manner, the Government is placing disproportionate burdens on taxpayers and eroding important taxpayer safeguards.
44.There was deep and consistent opposition from our witnesses to the proposed legislation to extend the offshore time limits for assessment. Witnesses felt this measure was unnecessary and undesirable. We recommend that it is withdrawn.
45.The Government should start a fresh dialogue with representatives of tax professionals to consider how offshore tax matters can be managed more effectively. Any revised measure should be more proportionate and targeted.
46.The consultation on HMRC’s civil information powers (which closed on 4 October 2018) proposed that HMRC should be able to seek information from third parties without first seeking the agreement of the taxpayer or the tax tribunal (as is required at present), with no right of appeal. It also proposed that HMRC should be able to use the information acquired for its wider purposes such as the collection of debt or to trace hidden assets. The justification for this proposal was that the process of applying to the tribunal delays matters, making the investigation process longer than in other jurisdictions. HMRC said in its consultation document:
“In recent years HMRC has more than doubled the resource it employs to handle requests for information to and from its overseas partners. This has improved the timeliness of responses to some degree, but the UK’s unusually formal and lengthy process for obtaining third party information means that additional resources alone are unable to allow to meet this aspect of the globally agreed standards.”
HMRC claim that other jurisdictions which have adopted the Common Reporting Standard complain about the length of time it takes HMRC to respond to their requests for information because of these rules. It also noted that it expects an increase in requests for information from international partners as a result of the Standard, placing “a larger burden on the resource of both HMRC and the tribunal service”.
47.As with the offshore time limits, the consultation went straight to solutions without exploring the perceived problem or how it could be best addressed. None of the 11 questions in the consultation document asked for views on the underlying problem or alternative solutions. Most of those who gave evidence to us on this subject felt that the justification for the proposal was weak and they were not persuaded that there was any compelling need for it. For example, UK Finance said, “We do not consider that HMRC has adequately explained how their proposed approaches will ensure that any future information requests are not disproportionate, inappropriate and unnecessarily intrusive.”
48.There was widespread concern about the withdrawal of what many saw as an important taxpayer safeguard. Keith Gordon said, “this proposed relaxation of the rules would lead to HMRC riding roughshod over taxpayers’ rights”. He, like other witnesses, told us that if there were a problem with HMRC meeting its obligations to overseas tax authorities then the new powers needed to be targeted much more narrowly on the sort of cases concerned.
49.Ruth Stanier OBE, Director General for Customer Strategy and Tax Design at HMRC, observed that this was “a very specific issue. This absolutely is not part of a wide approach or policy.” The Government announced at the 2018 Budget that “responses to the consultation and the next steps for implementation will be announced in due course.”
50.Oversight by the tax tribunal of HMRC attempts to obtain information from third parties is an important taxpayer safeguard, which should not be removed without good reason. HMRC has not offered a convincing rationale.
52.Common themes between the two proposals have emerged, including a concerning trend in HMRC’s powers. While consultation has been conducted on both proposals, each consultation went straight to presenting solutions without exploring whether there was any real need for action and, if so, how the perceived problems could be best addressed. This is contrary to the Government’s Tax Consultation Framework, described in detail in chapter 7. Even if the need for action were accepted, both measures are poorly targeted. Each undermines taxpayer safeguards: the extension of time limits by removing a compliant taxpayer’s right to certainty after four years, and the civil powers proposal by removing the safeguard of tax tribunal oversight.
39 HMRC, Amending HMRC’s Civil Information Powers, Consultation Document (10 July 2018): [accessed November 2018]
40 HMRC, Extension of Offshore Time Limits, Consultation Document (19 February 2018): [accessed November 2018]
41 Written evidence from Pinsent Masons ()
42 Written evidence from LITRG ()
43 Written evidence from Keith Gordon ()
44 (Keith Gordon)
45 Written evidence from ICAS ()
46 (Victoria Todd )
47 (Keith Gordon)
48 (Malcolm Gammie QC)
49 (Frank Haskew, John Cullinane)
50 Written evidence from LITRG ()
51 Written evidence from LITRG ()
52 HMRC, Amending HMRC’s Civil Information Powers, Consultation Document (10 July 2018): [accessed November 2018]
55 Written evidence from Herbert Smith Freehills LLP (), UK Finance () and LITRG ()
56 Written evidence from UK Finance ()
57 Written evidence from UK Finance (), LITRG (), ICAS (), Herbert Smith Freehills LLP ()
58 Written evidence from Keith Gordon ()
59 (Ruth Stanier)
61 HM Treasury and HMRC, Tax Consultation Framework (March 2011): [accessed November 2018]