Economic Affairs Committee Contents

Chapter 8: Powers Review principles revisited

162.Some 10 years on from the beginning of the last Powers Review, this chapter reconsiders the principles of tax administration in light of our conclusions.

The continued importance of the principles

163.In chapter 2 we described the principles agreed in the Powers Review. Many of the tax representative bodies were involved in the consultations which took place as part of the Powers Review. When asked what was important now, their comments generally built on the widely accepted principles. For example, the Association of Accountancy Technicians (AAT) highlighted the importance of equality and fairness, proportionality, clarity and transparency, reasonableness, timeliness and protection of taxpayers from digital errors.162 Dow Schofield Watts identified “a principle of transparency and clarity so the taxpayer is provided with a level of certainty”.163 Pinsent Masons LLP noted:

“HMRC’s powers need to be a proportionate response to the risks faced. They need to include adequate protection for taxpayers to ensure that HMRC is acting within its powers and to minimise unnecessary and disproportionate disruption to a taxpayer’s life or business interests.”164

164.There were some calls for change. The Association of Taxation Technicians (ATT) agreed that HMRC’s powers should be “designed to encourage and enforce compliance” but that should be in a “manner that supports, and produces the fewest unintended consequences or inappropriate consequences for those who make a serious if imperfect attempt to comply fully with their tax obligations.”165 The CBI wished to see a more collaborative approach and a “commitment to co-operative compliance” in order to maintain the UK’s international tax competitiveness.166

165.It was reassuring to note that the Director General for Customer Strategy and Tax Design at HMRC appears supportive of the principles, particularly citing even-handedness and proportionality167, and recognised that HMRC’s task was to act in the “interest of the vast majority of taxpayers”.168. Ruth Stanier OBE, Director General for Customer Strategy and Tax Design at HMRC, also mentioned the Needs Enhanced support service for vulnerable taxpayers;169 vulnerable and unrepresented taxpayers are not mentioned specifically in the principles. LITRG amongst others regarded them as extremely important.170

Pressures on the principles—HMRC resources

166.The last decade has seen major changes in HMRC. It has been under pressure to raise additional revenue for the Government, and seen a reduction in staff numbers by 15 per cent between 2010/11 and 2014/15.171 At the same time HMRC is reorganising into 13 regional centres, modernising administration of the tax system and preparing for Brexit and a Customs Declaration System.

167.Businesses and tax agents told us of the difficulty in accessing tax expertise in HMRC for individual taxpayers and small businesses; unlike large businesses, who often have access to a Customer Compliance Manager—a senior tax expert at HMRC assigned to the business who builds “in-depth knowledge of the business and the sectors they operate in”.172 Witnesses also said HMRC’s ability to deliver an effective service was undermined by diminishing levels of expertise. Graham Webber, Director of WTT Consulting, said HMRC “has moved from being a tax expert organisation to a tax-processing organisation”.173

168.As these changes have emerged over several years, it may be timely to review how the principles and Charter are faring in light of the resource challenges facing HMRC. It is important that fewer resources do not result in fewer safeguards or poorer service for taxpayers.

169.The Powers Review demonstrated the importance and advantages of developing a tax powers framework on an agreed set of principles. These principles are being forgotten in the push to tackle tax avoidance and evasion with fewer HMRC resources.

170.HMRC’s declining resources have rendered it unable to effectively perform its dual roles of tackling avoidance and evasion and ensuring taxpayers are treated fairly. Pressure to improve its counter-avoidance and evasion performance could understandably have resulted in neglect of its other responsibilities. This would not only explain the erosion of the Powers Review principles, but also reports of increasingly aggressive behaviour towards taxpayers.

171.The Government has a responsibility to ensure HMRC has the funding it requires to treat taxpayers fairly. We recommend that the Treasury, as part of the next Spending Review, assesses whether HMRC is adequately resourced to fulfil its Charter obligations.

172.Concerns that inadequate funding has caused HMRC to neglect its obligations towards taxpayers were also apparent in our Making Tax Digital for VAT Report. The Government should consider an independent review of HMRC resources more widely.

New principles for a digital age?

173.We heard that the new digital information era ought not to change the principles for most taxpayers,174 although once digital, the tax system needed to be accessible and the digitally excluded had to be catered for.175 ICAS said that the legislation needed to be modernised to allow for computer-generated communications and decisions,176 but that need not change the underlying principles. The CIOT said it was important that HMRC’s powers were updated to reflect the full scale of HMRC’s digital transformation.177

174.UK Finance, which represents a number of banking and financial services firms, said that in this digital age its members held vast amounts of data.178 They are seen as third-party providers of information to HMRC to a greater extent than in 2012. They wished to ensure that the principles also applied in their third party capacity as information providers to HMRC. The burden of information, enquiries and requests they handled to support tax compliance and enforcement needed to be proportionate to the tax risk at stake. Pinsent Mason LLP agreed: simply because digital data may be more easily searched and provided does not mean it should be automatically available to HMRC “if it is not reasonably required”.179

175.As reliance grows on third party providers, any weaknesses in their systems and processes may have implications for data accuracy. Digital developments do not themselves drive a need for new principles of tax administration. However, we recommend that the rights of the digitally excluded and the proportionality of the burdens placed on third party information providers should be adopted as important principles.

New principles

176.The 2019 loan charge drew attention to the principle of retrospection. The Government has a protocol which states that changes to tax legislation where the change is effective from a date earlier than the date of announcement will be wholly exceptional. The Government has not defined what is meant by “wholly exceptional”.180

177.The Tax Professionals Forum (TPF)181 recommended revisions to the Government’s protocol on retroaction in its 2013 and 2015 reports, to clarify explicitly the situations in which retroactive legislation could be introduced.182 It defined retroactive legislation as applying to income or gains arising in periods prior to the announcement of the change in law. The Government has not followed the recommendations.

178.Recent developments have highlighted concerns on retrospective legislation. We recommend that the Powers Review principles should be updated to ensure that powers should not be sought that inappropriately apply to income profits or gains for tax years ending before the tax year of the announced change.

Monitoring compliance with the principles

179.There is no independent reporting or monitoring of compliance with the principles agreed in the Powers Review; rather it is up to consultation processes to highlight concerns and for HMRC to take them forward. The Tax Professionals Forum was established to advise ministers annually on compliance with the Government’s approach to policy making as a process. Given the concerns discussed above, and the differing interpretations that may be applied to the principles, we propose that the principles are incorporated into the statement of the policy-making process so that adherence with them can be monitored by the TPF.

180.We recommend that the Government recommits to the principles set out in the Powers Review, with the additions we have proposed. They should be formally incorporated into the Government’s policy-making process and monitored by the Tax Professionals Forum.


162 Written evidence from ATT (DFC0061)

163 Written evidence from Dow Schofield Watts (DFC0078)

164 Written evidence from Pinsent Masons LLP (DFC0058)

165 Written evidence from ATT (DFC0061)

166 Written evidence from the CBI (DFC0079)

167 Q 52 (Ruth Stanier)

168 Ibid.

169 Ibid.

170 Written evidence from LITRG (DFC0067)

171 HMRC, Annual Report and Accounts 2017–18 Historical data series (2 August 2018): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/724956/HMRC_ARA_2017–18_-_Historic_data_series.xlsx [accessed November 2018]. Numbers have been rising since then, and the net change is a reduction of 11 per cent to 2017/18.

172 Q 2 (John Cullinane and Charlotte Barbour); HMRC, How HMRC works with large businesses (9 April 2018): https://www.gov.uk/guidance/hm-revenue-and-customs-large-business [accessed November 2018]

173 Q 39 (Graham Webber)

174 Q 7 (Charlotte Barbour) and written evidence from LITRG (DFC0067)

175 Written evidence from LITRG (DFC0067)

176 Written evidence from ICAS (DFC0068)

177 Written evidence from CIOT (DFC0071)

178 Written evidence from UK Finance (DFC0066)

179 Written evidence from Pinsent Masons LLP (DFC0058)

180 HM Treasury and HMRC, Tackling Tax Avoidance (March 2011), chapter 4: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/197112/Tackling_tax_avoidance.pdf [accessed November 2018]

181 The TPF was established to advise ministers annually on compliance with the Government’s approach to policy making as a process.

182 Tax Professionals Forum, Second Independent Annual Report (27 March 2013): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/204924/taxprofessionalforum_270313.pdf; and Fourth Independent Annual Report (December 2015): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/487272/TPF_2015_official_final_16_12_2015.pdf [accessed November 2018]




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