In its response to HMRC’s consultation on the Tax Administration Framework Review (TAFR), ICAEW’s Tax Faculty argues that new powers of investigation should not be granted to HMRC until the use of existing rights is improved.

Responding to Chapter 7 of the consultation, which focuses on powers and safeguards, the faculty recommends that where new powers are granted appropriate safeguards are put in place to ensure fairness in the tax system. It points to the recent introduction of financial institution notices (FINs) as an example of where insufficient safeguards have been introduced to protect taxpayers’ rights.

With HMRC gaining greater access to third-party data, the faculty also suggests that this information is more openly shared with taxpayers and agents to enable errors to be corrected and to enable disputes and enquiries to be swiftly resolved.

Powers and safeguards

In its response (see ICAEW Rep 65/21), the Tax Faculty identified a series of key issues that need to be addressed with regards to HMRC powers and taxpayer safeguards, including:

• The difficulties posed by legislation covering powers and safeguards being spread across different tax regimes.
• The perceived confrontational and suspicious nature of HMRC enquiries.
• The need to ensure that vulnerable taxpayers are dealt with sympathetically and by a separate unit.
• The confusion and frustration caused by HMRC not explaining why it has opened an enquiry.

The faculty believes that improvements could be delivered through:

• Increasing the number of avenues for discussions and touchpoints with HMRC to quickly resolve issues. In particular, HMRC should make use of the opportunities offered by Making Tax Digital (MTD).
• Introducing the ability to escalate issues to HMRC’s technical specialists.
• HMRC making better use of third-party data.
• Greater integration of agents into the enquiry process.
• Explaining safeguards and rights to taxpayers more clearly.

Should any additional investigative powers be required, these must be matched by equivalent safeguards. Not everything should be changed though. Existing concepts such as ‘reasonable excuse’ should be maintained.

Embracing collaboration

One of the main concerns of faculty members is the often-adversarial nature of tax enquiries which could be resolved more quickly and effectively with a more collaborative approach. For example, clear benefits could be achieved by HMRC explaining the reasons for opening enquiries so that taxpayers and their agents can better understand an inspector’s concerns.

Meanwhile, access by agents to the technical experts dealing with particular aspects of a taxpayer’s return would help to resolve disputes more quickly.

Taxpayers could also have their rights explained to them sooner and more clearly as these are often not understood by taxpayers and their agents unless a tax investigations specialist has been engaged.

The faculty is particularly concerned about the impact of enquiries and investigations into the most vulnerable taxpayers for which it recommends HMRC sets up a dedicated unit staffed by inspectors who are trained in spotting and dealing with mental health and other issues.

One of the potential benefits arising from further digitalisation of the tax system is an increase in the opportunities for interaction and touchpoints between HMRC, taxpayers and agents and the faculty recommends that HMRC makes the most of the opportunities that technology brings in that respect.

The ability to deal with HMRC staff that can consider a taxpayer’s affairs holistically, drawing on the experience that large businesses have in dealing with their customer compliance managers, would also be beneficial.

Finally, further clarity and simplification could be achieved by consolidating HMRC’s various powers and the corresponding safeguards contained throughout tax legislation into a single regime.

Read more on ICAEW's response to TAFR

• HMRC needs more resource to rebuild UK's tax system
• In-year tax estimates wouldn't be an accurate basis for payment, says ICAEW.
• Join up HMRC systems to provide a better tax experience, says ICAEW.
• Identification and registration of taxpayers must be a priority, says ICAEW.