181.This chapter returns to how HMRC’s powers have been significantly augmented over recent years; it explores whether oversight of those powers and its activities needs to be correspondingly increased. It also considers some wider issues about HMRC’s accountability.
182.The Powers Review was a successful model of how HMRC powers should be developed. It proceeded on a set of governing principles and was heavily consultative. It had an Implementation Oversight Forum to ensure the principles were implemented effectively.
183.In the light of the considerable increase in HMRC’s “new powers” and concerns over safeguards since 2012, some witnesses felt that the time had come for a new Powers Review. ICAS said “ICAS believes that the time has come for another review of the framework within which HMRC operates. This should include the consolidation in one act (a new [Taxes Management Act]) of the legislation governing HMRC powers, deterrents and safeguards.” CIOT said “We suggest that a new review is needed—albeit one that should not be as extensive and lengthy as the last one—to establish the principles that should govern HMRC’s powers in a digital age. Such a review should start at Stage 1 of the consultation process asking what broad changes might in principle be necessary to the 2005–12 framework, and why”. Frank Haskew agreed, “The time has come to review this”, as did the AAT.
184.A new Powers Review might therefore have a twofold purpose. It could take an overview of the development of HMRC powers since 2012, and their cumulative effect, making the case for change, for new principles or additional safeguards as discussed above.
185.It might also look forward to consider how HMRC’s powers need to adapt to a tax system which in the future will be largely digital. Most of the powers were designed and drafted into legislation for a system where everything was done on paper—such as notices, filing, assessments, or the raising of penalties—and by HMRC officials, rather than by being computer generated. It is becoming apparent that these powers may not work so well in a digital environment and are causing a new workload for the tax tribunals and need to be updated.
186.At the same time the experience of our inquiry into MTD for VAT suggests that consideration should also be given to the protection of taxpayers who are less able to cope with a digital tax environment. ICAS said “ICAS does not support mandatory ‘online everything’ in the tax system. ….there must be proper alternatives for the digitally excluded and adequate support for the digitally challenged. The AAT noted that “powers should be amended to avoid penalising the “digitally willing taxpayer”, whose only reason for non-compliance arose out of an in-built systemic software issue”.
187.We recommend that the Government establishes a new Powers Review, both of the cumulative effect of recent developments and what is needed for the future as tax administration moves to digital systems. This should replicate the successful features of its predecessor in order to update the established principles.
188.The structure of HMRC’s current accountability and oversight is summarised in Box 5.
(1)HMRC operates under powers given to it by Acts of Parliament.
(2)HMRC is required to publish a Charter of the standards of behaviours and values to which HMRC will aspire in dealing with taxpayers. HMRC is required to report on its performance against the Charter annually.
(3)The Financial Secretary to the Treasury, Mel Stride MP, has ministerial responsibility for its work.
(4)HMRC is headed by a body of Commissioners, including the Tax Assurance Commissioner (TAC) who has special responsibility for the settlement of disputes with taxpayers and who reports annually.
(5)The National Audit Office has powers to enquire into the efficiency of aspects of HMRC’s administration of the tax system, its accounts and the value for money of its operations. It reports to the House of Commons Public Accounts Committee.
(6)HMRC is also answerable to the House of Commons Treasury Committee which reviews aspects of its work.
(7)HMRC’s interpretation of tax law is subject to oversight by the Courts. Taxpayers can appeal decisions to the tax Tribunal, then through appeals ultimately to the Supreme Court.
(8)Challenges over HMRC’s administration of tax law may be taken to judicial review.
(9)Taxpayers can refer complaints about HMRC’s treatment of them to HMRC, or to the Adjudicator (but not on matters of policy or of tax law) for independent oversight. The Adjudicator reports annually, with recommendations.
(10)Taxpayers can also refer complaints of maladministration against HMRC to the Parliamentary and Health Service Ombudsman through their MP.
189.Our evidence suggested that some, though not all, were aware of existing structures designed to provide oversight of HMRC and hold it to account.
190.There was clear feeling that oversight was insufficient. ICAEW said: “We would strongly recommend that an independent body should have oversight of how HMRC deploys its powers and exercises the relevant safeguards” and ICAS said: “there needs to be an oversight body that could report regularly on how powers are exercised.” Witnesses noted that it was difficult for parliamentarians and others to challenge the proportionality of new powers without being perceived as apologists for tax avoiders.
191.It appears from our evidence that current oversight arrangements do not provide the full range of protections, checks and balances that taxpayers and their representatives consider necessary. Few specific proposals were offered as to how such an independent body could be set up and function. This needs to be explored further.
192.The Financial Secretary to the Treasury’s refusal to give oral evidence on this inquiry also suggests a disrespect for parliamentary oversight on issues of tax administration from the Treasury. Parliament may need to consider how it can better hold the Treasury to account in this respect.
194.It may be time for Parliament to rethink how it holds HMRC and the Treasury to account for the fair treatment of taxpayers. There is considerable support for new oversight of HMRC and a compelling need to address the view that HMRC is not sufficiently accountable. It has not been practical to explore this fully and effectively in the course of our inquiry, and we are mindful of the House of Commons’ pre-eminence in financial matters. Further work is needed to determine what new oversight might be established and how it would fit with existing arrangements.
195.We recommend that the Procedure Committees of both Houses review the mechanisms by which HMRC’s powers are considered by Parliament, to ensure HMRC’s powers are given sufficient scrutiny and the Treasury is held accountable for its role in tax administration.
197.There was support for the Consultative and Oversight Committee structures which existed during the Powers Review. They seem to have been effective in ensuring a steady focus on taxpayer safeguards and a balance between taxpayers and tax authority. There is no reason why such a body should be tied exclusively to a powers review. There is a case for this body to be made permanent, particularly given the volume and complexity of tax legislation and time pressures for parliamentary consideration.
198.We believe there is a precedent for this in the Joint Consultative Committee on VAT (JVCC) which has been operating for a number of years. The quarterly JVCC meetings bring together HMRC and representative bodies to ensure HMRC understands the taxpayer perspective on VAT issues.
199.A collaborative body with a focus on powers, within a broad remit, could monitor the balance between HMRC and the taxpayer, consider new proposals for legislation, including taxpayer safeguards, and provide oversight of the issues around HMRC culture and deteriorating customer service which have caused our witnesses concern.
200.We recommend that a Joint Consultative Committee on Powers, modelled on the Joint Consultative Committee on VAT, be established to fulfil this function, with wide representation from tax professionals and business organisations. It should also oversee any new powers review.
183 Written evidence from ICAS ()
184 Written evidence from CIOT ()
185 (Frank Haskew), Written evidence from AAT ()
186 Written evidence from ICAS ()
187 Written evidence from ICAS ()
188 Written evidence from AAT ().
189 Written evidence from ICAEW ()
190 (Charlotte Barbour)
191 (Lydia Challen) and (John Cullinane)