Concern over new powers in Taxpayer's Charter
A pledge in the new Taxpayer's Charter in which HM Revenue and Customs vows to 'relentlessly pursue' those who 'bend' the rules is far too strongly worded, as it could allow HMRC to adopt a highly aggressive stance towards taxpayers who are engaged in entirely legitimate tax planning, according to McGrigors, a commercial law firm.
The aim of the tax Charter, the first of its kind in the UK to have the force of law, is to set out the rights and responsibilities of HMRC and taxpayers in a clear and balanced way. The draft Charter is currently open for consultation for the next 12 weeks. McGrigors points out that it can be very unclear in practice whether the rules have been 'bent' in any given case. At one end of the spectrum are aggressive tax schemes, but the term 'bending' could easily cover planning that seems entirely normal when it takes place.
The law firm also warns that it is unclear how HMRC could 'relentlessly pursue' taxpayers for 'bending' the rules. HMRC has the right to challenge any tax return, to seek information and to satisfy itself that the return is correct. However, HMRC has legal duties from public law not to behave unreasonably. It also has no powers to impose penalties on taxpayers for arranging their affairs in ways that minimise their tax liabilities as long as they do not break any rules.
Rupert Shiers, a partner at McGrigors, said: "By definition a charter is supposed to clearly define rights and responsibilities, but this point is highly ambiguous. HMRC often sees apparently normal tax planning as 'bending the rules', and if Parliament approves this Charter we could see far more extensive challenges launched against innocent taxpayers.
"Everyone wants HMRC to have the power to deal with the minority of taxpayers who break the rules. But there are many more taxpayers who arrange their affairs to minimise the amount of tax they have to pay, and do so legitimately.
"The Government must not use the Taxpayer's Charter to make it practically impossible for those taxpayers to defend their position if HMRC decides, several years later, that it does not like what they have done."