My first inclination was not to write about this subject because others have written about it recently for economia. Having just read the Hansard report of the first day’s Finance Bill Committee proceedings however I changed my mind.
My subject is two proposed new powers for HMRC. Neither is contained in the 2014 Finance Bill but both are scheduled for the 2015 Finance Bill. There is, therefore, still time to do something about them.
The first power
The first proposed power would enable HMRC to collect tax debts direct from people’s bank accounts where the debt is established and where HMRC has taken steps to recover it but the taxpayer has still failed to pay. Some 53 pages into the Budget Red Book those of us who spend our time reading the small print in such documents found the following statement:
“The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple times by HMRC to pay. A minimum of £5,000 will be left across debtors’ accounts. This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.”
This rang some pretty loud warning bells for me, not because I don’t want HMRC to collect tax that is due, but because I fear the potential for serious errors or mistakes.
A couple of years ago I received a letter at home threatening a visit to mark my goods for auction as I had ignored correspondence about a tax debt. I did not actually have a tax debt ( the fact that no figure for tax was shown on the threatening letter was something that might have given the person who sent the letter pause for thought but clearly didn’t). Fortunately I knew what to do next because of the job I do, but what if I hadn’t?
The week after the Budget announcement was made one of my clients was threatened with a visit to collect a PAYE debt that had been paid weeks earlier and another client was called (he said the tone of the call was pretty stern) about a VAT debt that had also been paid. Both clients have an excellent history of paying their tax on time.
This week a client received a “most people pay their taxes on time so why haven’t you?” letter requesting payment of tax shown as due on an HMRC self-assessment amendment. The amendment was dated 10 April and the chasing letter was dated 16 April.
All of these were administrative errors. All had explanations. All caused irritation, wasted time and unnecessary worry. I suspect most practitioners reading this will have had similar experiences.
And that is why I am worried about the proposed new power. I think HMRC should be as well, because it will only take one or two cases of this going wrong to create some very bad headlines.
The measure is up for consultation and the best outcome would be for it to be dropped. No-one should have access to a citizen’s bank account without the sanction or oversight of the court.
The second power
The second proposal is for there to be a presumption that someone who has undeclared taxable offshore income has failed to declare it deliberately. They should therefore be presumed guilty unless and until proved innocent. I do not defend deliberate failure to disclose offshore taxable income: those who deliberately fail to declare taxable income should be dealt with robustly. Tax evasion is a crime. This reversal of the usual presumption of innocence however is an extremely alarming proposal.
I am concerned that a fundamental principle of law is being turned on its head. I am also concerned about the potential for perfectly innocent situations to lead to utterly ghastly consequences.
Again this measure will be consulted on and again I hope that it will be re-thought.
The role of Parliament
During the summer both proposals will, as I have said, be consulted on. It is important that ICAEW and others make our voices heard during that consultation.
There is then a further stage in the process. Legislation has to be drafted and to find its way into a Finance Bill in 2015 (I say “a” Finance Bill as 2015 being an election year there will be more than one). That means there must be debate about the proposed powers in Parliament. I hope that there will be because what we are talking about here is the balance between the powers of the state and the rights of the citizen. It is about civil liberties. These are things I would hope MPs would be keen to debate.
I worry about this on two counts.
The first is that on reading the first day’s Finance Bill Committee proceedings this week my overriding impression was that there was far too much focus on making party political points about the economy and the tax system and far too little focus on the technical detail. The technical detail of the proposed new HMRC powers will need careful, informed scrutiny and robust debate by our elected representatives.
The second is that these proposals need to be seen for what they are: new powers which – if they are to be introduced at all - must be balanced by very strong safeguards. Those safeguards must be in law, not in guidance. It would be too easy for politicians to take a superficial view that as the powers are aimed at those who do not keep their tax affairs in order HMRC must be granted them.
The debate needs to be about the core issue: the power of the state and the rights of the citizen. It will take place in 2015, the 800th anniversary of the signing of Magna Carta. Hopefully that will focus minds on the importance of taking only necessary powers and of respecting the rights of the citizen.
Paul Aplin is a tax partner with A C Mole & Sons and Chairman of the ICAEW Tax Faculty Technical Committee; you can follow him on Twitter: @PaulAplinOnTax