The proposed changes 

The consultation invited comments on the following proposals: 

• introducing additional information requirements similar to those applying to claims for research and development (R&D) tax reliefs to other claims for tax reliefs and allowances;
• reforming HMRC’s power to issue a revenue correction notice (RCN) to correct a taxpayer’s direct tax return where HMRC has reason to believe the return is incorrect; 
• allowing HMRC to enquire into a specific issue without affecting its ability to enquire into the full return at a later stage; and
• giving HMRC a new power to require a taxpayer to correct their return by issuing a taxpayer correction notice. 

HMRC says that the proposed changes “have the potential to modernise and reform HMRC’s approach, not simply in regard to credits and reliefs, but to how it responds more broadly and effectively to the increasing issue of large numbers of taxpayers making similar, relatively small mistakes”. 

ICAEW’s general comments 

ICAEW believes that it is not immediately clear what issues HMRC is aiming to solve with the proposals. Although HMRC refers to high volume errors, no data has been provided on the nature, root cause and impact of those errors.  ICAEW believes that this should be established before moving on to consider the possible solutions, which could include better use of existing powers or more effective training for HMRC caseworkers relating to the use of those powers. 

ICAEW recommends that a better starting place would be to look at: 

• harmonising existing powers and procedures across the various heads of taxes;
• ensuring that existing compliance check processes are efficient; and 
• consolidating the existing taxes management legislation into a single act before considering or investigating the introduction of new powers.  

Further, ICAEW believes that more work could be done in simplifying the tax system and its administration so that it is easier for taxpayers to remain compliant. Any changes to the tax compliance system need to prioritise opportunities for taxpayers and agents to interact with HMRC digitally, while also retaining alternative routes for the digitally excluded. 

ICAEW’s view on the proposals 

ICAEW: 

• believes it would be more effective for HMRC to utilise the information it already receives rather than introducing additional reporting requirements. If HMRC pursues the introduction of further additional information requirements, it should make sure that the changes do not make completing a return prohibitively expensive and complicated;
• supports alignment of the rules for RCNs to the current stamp duty land tax model but believes that the use of RCNs should remain limited and be better prescribed in law; 
• is unconvinced by the case made for the introduction of partial enquiry notices. In particular, the way the notices would interact with and supplement the existing enquiry and discovery assessment system needs to be examined in more detail; and
• agrees that, in theory, taxpayer correction notices could be an effective way to correct errors without HMRC needing to open an enquiry, which could be expensive for all involved. However, ICAEW is concerned that the notices might be based on incorrect information and that an alternative course of action to correcting a return (such as making a more comprehensive disclosure of the taxpayer’s affairs) might be more appropriate for certain taxpayers and situations.