ICAS calls for wider reform in response to a consultation on tackling tax non-compliance

We outline our call for broader reform of HMRC’s powers, to tackle fundamental underlying issues, rather than continuing the trend of piecemeal changes to address immediate problems.

On Budget Day, the government published the outcome of the 2024 call for evidence on enquiry and assessment powers, penalties and safeguards, including proposals to align powers and safeguards across direct and indirect taxes. This announced that there would be further consultation on three areas:

• Options for new approaches to tackle high volumes of low value non-compliance.
• Behavioural penalties, including how the concepts of penalty alignment, simplification and escalation can be applied to existing ‘inaccuracy’ and ‘failure to notify’ penalties.
• How to improve access to alternative dispute resolution and statutory review to help resolve disputes before they reach tribunal.

Consultation on new ways to tackle non-compliance

The first of the three further consultations was also published on Budget Day. It explains that in recent years, there has been a significant increase in taxpayers making inaccurate claims for relief or having inaccuracies in their tax returns. This is challenging for HMRC because many of its powers are designed to address inaccuracies through one-to-one engagement with individual taxpayers. These processes can be time consuming, may be disproportionate and are not well suited to addressing issues that affect many taxpayers at the same time.

The consultation set out four proposals:

• Introducing requirements to submit additional information for other tax reliefs and allowances (a requirement to submit additional information with R&D claims has already been introduced).
• Reforming Revenue Correction Notices (RCN): Aligning the conditions for issuing RCNs, requiring taxpayers to provide evidence to support a rejection of an RCN and potentially requiring HMRC to explain why they are issuing an RCN.
• Introducing a partial enquiry power to allow an enquiry into a specific issue.
• Introducing a new power for HMRC to require taxpayers to self-correct returns and claims.

The ICAS response

ICAS attended several stakeholder discussions with HMRC and submitted a detailed response to the consultation.

It’s disappointing that instead of putting forward proposals for broader reform of the framework for enquiry and assessment powers this consultation continues the trend of introducing piecemeal changes to address problems arising, without fixing the fundamental underlying issues. The focus is solely on non-compliance (particularly of individuals and small businesses), not on improvement, modernisation or simplification of the system which would benefit all taxpayers.

Comprehensive reform should remove, or considerably reduce, the need for constant additions and adjustments to deal with problems, many of which are caused by an out-of-date underlying legislative structure, which is no longer fit for purpose.

Our response calls for the publication of a timetable for the development of (and consultation on) detailed proposal for broader reform of the enquiry and assessment regimes.

The remainder of our response discusses the detailed proposals, from the starting point that that any measures taken should not delay wider reform and should, where possible, use existing processes and powers as the starting point. 

On that basis we can see some positive aspects to the proposals for supplying additional information, changes to RCNs and partial enquiry notices, subject to important conditions being met and adequate safeguards being in place. Our response includes suggestions for making these proposals work effectively in practice, without imposing additional unnecessary burdens on agents and taxpayers. 

We do not support the proposal for the introduction of a new regime requiring taxpayers to self-correct. This would add a new layer of complexity, would be difficult for unrepresented taxpayers to navigate and would increase costs for compliant taxpayers and their agents.

Let us know your views

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.