HM Revenue & Customs is seeking new powers that will allow it to obtain information about taxpayers from any business or organisation without seeking approval from the tax tribunal.
The proposals, set out in a government consultation launched this week, would allow HMRC to submit information requests directly to financial institutions, accountants, lawyers, estate agents and other third parties.
The consultation also proposes the introduction of a new “financial institution” information request, which would allow HMRC to obtain bank statements, transaction histories and other basic banking information “reasonably required to check a taxpayers’ tax position” without tribunal approval.
Should the proposals come into effect, other requests for information would remain subject to tax tribunal approval.
Jason Collins, partner at law firm Pinsent Masons, said: “If anyone was alarmed at HMRC’s reach then these new powers will feed their concerns. HMRC is essentially asking for unfettered access to information on taxpayers from third parties with no advance independent oversight.”
Obtaining prior consent from the tax tribunal was an essential check, he said, and helped safeguard taxpayers against speculative enquiries or “fishing expeditions”.
Other tax experts agreed. Tim Stovold, head of tax at accountants Kingston Smith, said: “HMRC wants to remove the protection that ordinary citizens currently have from intrusion into their private financial affairs from the state . . . To abolish the need to seek authorisation from the tribunal would remove a vital public safeguard.”
Mr Collins said there may be a case for having a separate information request for banks covering basic bank account information. Such requests will become more routine now that overseas tax authorities will be automatically receiving data on taxpayers’ UK accounts through measures known as the Common Reporting Standard.
“However, information requests to other types of third party should remain subject to approval by the tribunal as they are likely to be rarer and will probably involve less routine information,” said Mr Collins. “Oversight by the tribunal will be more important in these cases to ensure that HMRC is not overstepping the mark.”
Separately, a freedom of information request to HMRC revealed a 46 per cent increase in the number of penalties imposed on taxpayers for “deliberate” errors on tax returns, bringing the numbers to 6,125 in 2017-18 from 4,183 in 2016-17.
PfP, the specialist insurer which obtained the figures, explains that HMRC accuses taxpayers of “deliberate” behaviour if it suspects an error on a tax return was not made accidentally, or that a taxpayer knew of an error and did not correct it.
Penalties for “deliberate with concealment” errors allow HMRC to levy the highest fees on taxpayers of all categories of penalty. These could result in a taxpayer paying a fine equivalent to 100 per cent of the amount HMRC claims is due.
Small businesses may be particularly at risk of “deliberate” penalties. HMRC recently revealed it suspects 22 per cent of small and medium-sized businesses are filing incorrect tax returns. This means potentially one in five SMEs are at risk of an investigation into the accuracy of their tax returns.
PfP says the total number of “deliberate” penalties, including “deliberate with concealment”, hit 36,700 last year, up 8 per cent from 34,100 in 2016-17. The number of penalties has now more than doubled from 14,400 five years ago.
Kevin Igoe, PfP managing director, said: “The number of ‘deliberate’ penalties imposed has been increasing for several years now. This rise coincides with a fall in penalties imposed for ‘careless’ errors, which tend to result in a less severe fine. Indeed, the rise in ‘deliberate’ penalties doesn’t necessarily mean a rise in errors.”
HMRC said: “We do not charge a penalty if a taxpayer makes a mistake despite taking reasonable care to make a correct return. Taxpayers can request a review of a penalty decision, and can appeal to the tribunal against penalties charged.”
Date published: 13 July 2018
Word count: 636
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