Growing opposition to HMRC's proposed new charging powers
The most extraordinary of these powers is a new right for HMRC to extract money directly from an individual's or firm's bank account to pay an alleged tax debt. Although announced in the current Budget, this will not come into effect until next year. The government says the power will be subject to 'rigorous safeguards', and only used in extreme cases where debtors have the financial means to pay and have been contacted multiple times.
However, Frank Haskew, head of tax at the Institute of Chartered Accountants in England & Wales (ICAEW), says the new power is 'unprecedented and of considerable concern'.
'ICAEW has seen numerous cases recently of HMRC chasing debts which are not due, including attempting to confiscate assets,' Haskew told a Treasury Select Committee hearing this week. He cast doubt on how HMRC will reliably determine someone's ability to pay, given the dubious accuracy of its databases. 'We want to know what steps will be put in place to ensure funds that are not due are not seized and/or hardship does not follow seizure of funds.'
Haskew noted that the measure will effectively restore the old idea of Crown preference in bankruptcy proceedings, abolished more than ten years ago. 'HMRC is effectively to become a preferential creditor, which could lead to perverse effects – for example, people holding money in cash rather than in a bank account or moving funds offshore' he said. 'We believe it is imperative that there are proper safeguards and there should be proper judicial oversight of any decisions made with rights of appeal.'
Aaron Fairhurst of CMS Cameron McKenna noted that directly removing funds from a bank account can lead to the insolvency of companies that are struggling to manage cash-flow, because other unsecured creditors would have to take account of HMRC's ability to obtain payment ahead of them. 'Consequently, it is conceivable that a solvent company is forced into an insolvency process by the behaviour of HMRC levying of a tax liability that is ultimately found not to be due,' said Fairhurst.
The Budget also announced that HMRC will be able to demand pre-payment of any tax in dispute, where the application of the General Anti Abuse Rule (GAAR) or disclosure (DOTAS) regimes are asserted. This is even before a court has determined that such amounts are in fact due at all. It would also apply in 'follower' cases, where HMRC regards a taxpayer's situation as sufficiently similar to another where the taxpayer has already lost in court or at tribunal. This power to demand 'accelerated payments' will be legislated in this year's Finance Act and become law some time in the summer.
This week, the Law Society issued a highly critical statement to the effect that this power makes HMRC judge and jury in its own cases, with – at least in follower cases – no right for the taxpayer to appeal.
The society has proposed five amendments to take the sting out of this extra power – the main one being that accelerated payment orders should not be issued merely because a tax planning scheme has been declared under DOTAS. It also insists that follower notices should not be based on non-binding First-tier Tribunal decisions, and that there should be a right of appeal against follower notices, with no penalties for those who invoke it.
Stephen Coleclough, President of the Chartered Institute of Taxation, agreed that it is going too far to allow HMRC to act as prosecutor, judge and jury on DOTAS grounds alone.
Many critics of the proposals also point out that they are retrospective in applying to disputes already in progress – particularly regarding schemes disclosed under DOTAS.
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