The relationship between HMRC and the tax advisory profession

How far can HMRC go?

Now the loan charge deadline has passed, it is time for us to take a step back and look at how the relationship between HMRC and the tax advisory profession has evolved over the last few years.

A history lesson

On the whole, the tax advisory profession exists to help taxpayers understand and fulfil their obligations while assisting individuals to legally mitigate their liabilities. In my experience as a tax investigations practitioner, you meet the full range of individuals – those that were advised badly, those that simply made a mistake and those who deliberately set out not to pay their taxes for whatever reason, the latter being a minority. In the majority of cases however, HMRC’s stance appears to now be “guilty until proven innocent”, contrary to the general rule of law in this country.

In 2014 Parliament implemented the Accelerated Payment Notices and Follower Notice legislation, allowing HMRC to collect taxes, before having to demonstrate it was due.

Rather than looking to amend our judicial system and perhaps improve processes therein, it was determined that requiring individuals to pay upfront for taxes that may or may not be due was permissible. The legislation was retrospective as at the time the tax arrangements were put in place, the understanding was that if the arrangements were challenged, HMRC would have to prove that they did not work before claiming any tax. This applied for all tax structures, not just for marketed avoidance schemes. At the time the APN/FN legislation was introduced, there was an outcry from the tax profession who feared that this move towards retrospective taxation with a significant impact on a huge amount of taxpayers (in absolute terms) could lead to further retrospection in other areas, ultimately affecting the certainty with which individuals are able to manage their tax affairs.

More recently, we had the loan charge, which stirred up the debate again. The loan charge is insidious because HMRC have marketed the legislation as simply bringing into charge loans outstanding on 5 April 2019. They neglect to mention that had HMRC used normal assessments timelines, they would be out of time to claim taxes considered due. The “safeguards” in place in relation to the loan charge – for example, that if a taxpayer had sufficiently disclosed their participation in a tax avoidance scheme and HMRC had not taken any action, then loans in those years did not need to be declared – are quite frankly, laughable. According to HMRC, putting the DOTAS number on the tax return, as required by law was not enough. HMRC had to have been given full detail of the amounts affected for the disclosure to be “sufficient”.

So, we must ask ourselves, how reasonable is it to expect HMRC to take a reasonable view, that would be taken by a reasonable person in a similar situation. As professional advisers, if we were to give a reference number on a form that related to something with further implications, surely, we would investigate it. I suggest that HMRC officers should be considered to have sufficient expertise in tax to know when there is something that needs to be looked at more closely. The loan charge legislation appears to be a case of passing the buck and requiring taxpayers to have gone over and above what the legislation required. Would HMRC suggest it is “fair” for them to do the same?

HMRC and retrospection

In Finance Act 2020, we have seen additional retrospective legislation put in regarding Business Assets Disposal Relief, in the form of “anti-forestalling provisions”, which “counter arrangements that sought to “lock in” entitlement to the higher limit”. Actually, what s3(2) says is that regardless of what the law was in relation to CGT when contracts become unconditional, for the purposes of this legislation, the completion date is the date of the transaction if the two dates straddle 11 March 2020. So, persons who entered a transaction pre 11 March 2020 expecting the rules in force at that time to apply are sorely mistaken. Tax law once again changed at whim will have left a number of taxpayers with an increased liability and no way to restructure their affairs as the contracts had already become unconditional.

A number of cases have gone to the FTT querying whether HMRC’s issue of enquiry and penalty notices were valid if they have been issued by a computer rather than “an authorised officer”. Khan Properties Ltd won their case in relation to an automatic £100 late filing penalty where Judge Thomas confirmed that “the requirement…is for a flesh and blood human being” to issue the notice. Eventually, in the Commissioners from HM Revenue and Customs v. Nigel Rogers and Craig Shaw [2019] UKUT 0406 (TC), the Upper Tribunal confirmed HMRC’s position – that notices issued by computer are valid.

To confirm this, further legislation has been introduced in s103, FA 2020 allowing notices issued by computer to be valid. Given that a number of cases have been litigated on this point, the reason the legislation was introduced is clear. My issue with the legislation is at s103(5) “this legislation is treated as always having been in force”. Any open appeals on this basis are effectively scuppered. Anyone waiting for a lead case to be litigated is disappointed and anyone in the process of litigating has wasted significant resources debating the point. I am not arguing on whether or not computer issued notices should be valid, my concern centres around the lack of certainty of the laws in place. If Parliament can change laws at will to suit their purposes with effect from prior to when the legislation was enacted, how far can they go?

The relationship between HMRC and advisers

In terms of certainty, legislation plays a significant role. In relation to Failure to Correct for example, the standard penalty is 200% of the liability with a reduction to 100% for an unprompted disclosure with full mitigation for “telling”, “helping” and “giving”. HMRC’s “policy” is to reduce the penalty only to 150% if the disclosure is prompted. This is not in legislation, nor is there any basis for the arbitrary limit to reduction. Nonetheless, as far as HMRC are concerned, internal policy is as good as law. If any readers have tried to negotiate with HMRC as far as “policy” goes, they will understand it is an uphill struggle. More difficult in some ways is having to explain to the client that the penalty percentage will largely be governed by HMRC’s internal decisions rather than the law.

Over the last few years, it seems that HMRC are attempting to drive a wedge between advisers and taxpayers – we had the promoters legislation, now individuals can only get full mitigation for certain penalties if they provide details of their adviser, and with the lack of uncertainty regarding legislation (vis a vis retrospection), taxpayers never know if advice they are paying for will ultimately be worth it or not. At the same time, HMRC have not moved to fill the gap and provide advice, which advisers or the public can rely upon. Instead, HMRC bosses continue to write articles suggesting further regulation of the profession, while admitting that this is in respect of tax avoidance schemes, the majority of which are marketed by non-regulated individuals and many advisers have commented on how HMRC are approaching their clients directly, effectively cutting them out and leaving the client vulnerable.

HMRC appear to have forgotten that tax advisers are helping Joe Public get their tax affairs right, which ultimately helps the public purse. Rather than undermining us, a little cooperation and dare I say, appreciation, would not go amiss.

The full article “How far can the HMRC go?” was published in the “HMRC: Enquiries, Investigations & Powers Magazine” in October 2020. You can download it here.

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