Modernising the tax administration framework: The latest call for evidence
By Susan Cattell, Head of Tax Technical Policy
18 March 2024
We outline important proposals in the latest call for evidence on modernising the Tax Administration Framework.
HMRC has published a call for evidence on enquiry and assessment powers, penalties and safeguards, including proposals to align powers and safeguards across direct and indirect taxes. This is the latest stage in the implementation of the government’s 10-year strategy (published in 2020) to build a trusted, modern tax administration system.
HMRC’s enquiry and assessment powers
The call for evidence explains that HMRC relies on taxpayers notifying liability and supplying information to make the tax system work. HMRC has a range of powers enabling it to check the accuracy of information provided and to tackle non-compliance. These powers currently vary across different tax regimes, for example, the approach for direct taxes is different to the approach for indirect taxes.
The call for evidence identifies six opportunities for reform:
- Reform opportunity A: Consistent powers across tax regimes.
- Replace HMRC’s current enquiry and assessment powers with a single set of powers that apply across all taxes.
- Or identify circumstances or taxes where a common approach could be applied (and others needing a different approach) and design appropriate powers.
- Reform opportunities B and C: Aligning powers, addressing gaps and introducing a power to make consequential amendments.
- Reform opportunity D: Conditions for assessment.
- HMRC’s ability to raise assessments for indirect taxes, or where a discovery has been made for CTSA and ITSA, is restricted by conditions that relate to HMRC’s knowledge of the facts. These are a source of dispute and litigation.
- The UK could adopt a simpler, strict time limit approach as other countries do. - Reform opportunity E: Tailoring HMRC’s powers to address challenges presented by claims for tax relief and credits.
- Reform opportunity F: Modernising administration and communications.
- Many of HMRC’s current powers were created in a pre-digital era. HMRC wants to communicate more efficiently by increasing the use of digital and self-service options (with alternative provision for the digitally excluded).
- Currently, statutory notices must be issued by post. However, HMRC would like to be able to issue these directly to taxpayers’ and agents’ digital accounts.
Penalties
The call for evidence outlines challenges arising from the current penalty regimes,
including, proportionality, complexity, establishing behaviour and agents contributing to non-compliance.
The ten reforms under consideration aim to consolidate and simplify penalties, making them easier to understand and implement while strengthening incentives to comply:
- Reform opportunities G and H: Aligning penalties across tax regimes and simplifying individual penalties.
- Reform opportunity I: Reforming the use of penalty suspension.
- Reform opportunity J: Proportional fixed penalties (setting penalties that rise with income, resources or tax liability).
- Reform opportunities K and L: Penalty escalation for continued non-compliance, and for repeated non-compliance.
- Reform opportunity M: Designing new penalties to discourage undesirable behaviour.
- Reform opportunity N: Modernising administration and communications (using timely digital communications about penalties and interest).
- Reform opportunity O: Regular uprating of penalties (possibly updating penalty amounts on a regular basis, to help maintain their value in real terms).
- Reform opportunity P: Transparency (publication of statistics on penalties, allowing taxpayers to see that penalties are being applied and enforced).
Safeguards
The final section of the call for evidence considers safeguards. It highlights the importance of the right to appeal as a strong safeguard – responses to earlier consultations indicated that more could be done to preserve that right and to build on it. However, HMRC notes that aspects of the current safeguards create challenges for HMRC, taxpayers and agents. The final six proposals for reform deal with safeguards:
- Reform opportunity Q: Aligning how appeals are made.
- Reform opportunity R: Aligning payment requirements (currently there are different rules for direct and indirect taxes).
- The call for evidence discusses adopting either the direct tax or the indirect tax approach for appeals across all regimes.
- Similarly, could a common approach to payment of tax under appeal be adopted? - Reform opportunities S and T: Improving access to ADR and statutory review, including potentially mandating statutory reviews in certain circumstances.
- HMRC wants to explore the creation of a system that specifically encourages take up of ADR and statutory reviews.
- This could include an opt out approach, or statutory reviews could be mandated in some cases. - Reform opportunity U: Withdrawing the option of statutory reviews in certain cases.
- HMRC wants to prevent taxpayers exploiting safeguards to prolong disputes and defer payment. - Reform opportunity V: Digital administration (introducing more digital appeal services, following the introduction of one for some VAT penalties).
Let us know your views
We welcome input from members to shape the ICAS response to the call for evidence. Please email tax@icas.com by 10 April to give your views.
