ICAS responds to tax framework consultation
By Susan Cattell, Head of Tax Technical Policy
30 May 2024
ICAS has responded to important proposals in the latest call for evidence on modernising the tax administration framework.
Our response
We support simplification and modernisation. Taxpayers and HMRC would both benefit from a more streamlined, simpler system that would be easier to understand, administer and use. However, any changes must strike a balance between HMRC’s interests and the interests of taxpayers.
A key part of any reform programme should be the consolidation of all tax management and administration provisions in one place. The Taxes Management Act 1970 would be the logical place to look for these provisions, but it currently contains only part of the relevant legislation. Important provisions are scattered across numerous Finance Acts, so it is impossible for most taxpayers (and difficult even for agents) to access the relevant legislation and apply it to their circumstances.
Our response broadly supported greater use of digital channels and communications by HMRC, subject to important conditions being met, including:
- Alternatives for digitally excluded taxpayers.
- Digital options that work effectively for agents and taxpayers – and cover everything they need to do.
- Addressing the risk that taxpayers may miss important digital communications.
HMRC resources should not be diverted into the reform programme and away from day-to-day work running the tax system, leading to further deterioration in service levels. The government needs to provide adequate HMRC resources for initial implementation and to meet ongoing requirements imposed by reform (for example, providing more statutory reviews).
Other points in our response included:
HMRC’s enquiry and assessment powers
One of the most significant proposals in this section was to replace HMRC’s current enquiry and assessment powers with a single set of powers applying to all taxes. Alternatively, circumstances or taxes suitable for a common approach could be identified and appropriate powers designed.
In our response we commented that due to the considerable differences between taxes (particularly between annual taxes, those based on shorter return periods and those applying to one-off or infrequent transactions), it was unlikely that a single set of powers for all taxes would be feasible or beneficial.
However, there could be considerable benefits arising from greater alignment of powers across groups of taxes where a common approach would be feasible. Reducing the number of different regimes to be understood and complied with would be beneficial. It would also be helpful if the aligned powers and processes were simpler and clearer. However, any changes must be balanced; it would not be acceptable simply to increase HMRC’s powers, extend time limits for assessment and reduce the time limits for taxpayers to make claims.
Penalties
The call for evidence suggested ten proposals for reform, aiming to consolidate and simplify penalties, making them easier to understand and implement while strengthening incentives to comply.
We commented that there are too many different penalty regimes to act as an effective deterrent. Taxpayers are often unaware that penalties will apply, or how they operate. We questioned whether all penalties remain necessary – for example, is a separate penalty regime for offshore non-compliance still appropriate, given the expansion of international information sharing?
We agreed that it would be useful to consider aligning late submission, late payment and inaccuracy penalties across all HMRC regimes, although further consultation would be required on detailed proposals. However, we noted that the new points-based penalty regime for VAT (which is being expanded to cover ITSA returns within Making Tax Digital) illustrated the need for a different approach in some areas.
Our response supported the expansion of the use of penalty suspension in encouraging future compliance – either through automatic suspension of the first penalty or a warning for a first offence. Either option would need to be backed up by a clear explanation to the taxpayer of the relevant penalty regime, including advice on how to avoid penalties in future.
Safeguards
One of the main proposals in the final section of the call for evidence suggested a review of the merits and challenges of aligning the appeals process with either the direct or indirect taxes approach.
Our response supported the alignment of payment requirements across regimes by extending the ability to postpone the payment of tax to indirect taxes. Hardship applications take time and resources for HMRC and taxpayers. Being required to pay the disputed tax in full risks making it difficult, or even impossible, for some taxpayers to pursue an appeal. This is undesirable and likely to undermine trust in the fairness of the tax system.
We also broadly supported proposals to encourage taxpayers to take up statutory reviews and alternative dispute resolution (ADR), provided HMRC is given adequate resources to meet increased demand and operate both regimes effectively. We preferred encouragement and recommendation to imposing mandatory statutory reviews in some cases.
HMRC wanted to be able to withdraw the option of statutory review in some cases – where it considers that there are no reasonable grounds for appeal, or where the dispute involves an avoidance arrangement. It believes that some taxpayers are using statutory review to prolong disputes and delay the payment of tax. Our response strongly opposed this proposal. It would be unacceptable for HMRC to have the discretion to deny access to a key safeguard to some taxpayers.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members. We welcome input from members to inform our work; email tax@icas.com to share your insights and feedback.
