The Scope of HMRC's Powers

Established by the Commissioners for Revenue and Customs Act (CRCA) 2005, HM Revenue and Customs (HMRC) is a non-ministerial department charged with the fair and impartial administration of the tax system in the UK.

Parliament has equipped HMRC with a wide range of powers to execute their functions, day-to-day operational decision-making, tax policy creation, and handle businesses and individuals' tax matters.

In this article, I will explain?the design principles of HMRC's powers, its scope, and the safeguards that protect the taxpayers.?

Enhancing public confidence in HMRC

Just as a healthy tax system is based on public trust, HMRC operates on the basis that authority is transparent, fair, professional, and efficient. This trust has also been the basis for HM Treasury and HMRC’s tax reform approach as they simultaneously collect the requisite tax for public services and deal with those evading or avoiding fulfilling their tax obligations. To this end, Parliament has given HMRC a wide range of powers not only to collect and manage taxes to pay for the country's defense services, welfare, health, and social services, schools and universities, and transport systems but also tackle all direct and indirect tax fraud. These powers include the ability to:

• Administer the tax system by detecting defaulters and tax avoidance
• Investigate and proportionately respond to tax avoidance and evasion
• Resolve disputes fairly and ethically – helping customers get their taxes right and holding deliberate evaders accountable

Concurrently, safeguards have been put in place to ensure a fair resolution to tax disputes, especially in cases where the taxpayer has been unjustly accused, or there has been a misinterpretation of legislation. Sometimes, a good policy is not good law. HMRC also collaborates with taxpayers, tax agents, and representatives to:

• regulate the tone and content of their communications with taxpayers
• broaden the engagement, foster relationships based on trust and confidence in exercising their authority
• emphasize the importance of compliance and good tax behavior
• provide operational guidance to assist everyone in fulfilling their tax obligations appropriately and in good time.

The Design Principles for HMRC's Powers

In his Written Ministerial Statement (WMS) dated 22 July 2019, the Financial Secretary to the Treasury (FST) talked about the far-reaching powers of HMRC in administering the tax system and dealing with the challenges of tax evasion, fraud, and avoidance. However, he stressed that HMRC would wield these powers proportionately and consistently without compromising public trust. Taxpayers would also get access to legal safeguards and statutory rights to challenge the decisions that they deem unjust.

At the same time, as the appointed tax, customs, and payments authority in the UK, HMRC strives to spread awareness on tax compliance and improve its collection of tax debts by collaborating with taxpayers, agents, and accountants to ensure a fair and transparent process. To adequately fulfill its role, it uses the wide-reaching powers granted by the Parliament to prevent and tackle all types of direct and indirect tax fraud, to ensure a level ground for people paying the right amount of taxes on time. The principles on which these powers are designed are listed as follows:

Source:?The Powers of HMRC: Treating Taxpayers Fairly

The Scope and Powers Added Since 2012

Since its inception, HMRC has had a broad range of powers to fight avoidance and evasion of all taxes and recover all payable taxes, such as:

• Civil information powers where HMRC can request relevant information from third parties by issuing information notices.
• Investigatory powers include applying for and executing search warrants in conjunction with law enforcement officials.
• Ability to initiate criminal proceedings against deliberate defaulters, tax evaders, and promoters.

However, the scope is broader now and includes the new powers that enable HMRC to:

• Apply the General Anti-Abuse Rule (the GAAR) aimed at tackling deliberate tax avoidance where taxpayers that lose an appeal have to pay a penalty of up to 60% of the tax owed
• Enforce the Code of Practice on Taxation of Banks, which allows HMRC to publish the names of banks that adopt the Code and those that breach it or do not follow the Code.
• Publish the names of large corporations that default on their tax payments.
• Recover unpaid tax directly from taxpayers' bank accounts in the UK when standard collection methods fail.
• Take appropriate measures against participants of marketed avoidance schemes. The participants are given a choice to either settle with HMRC and pay the owed tax or pursue an appeal failing which HMRC can levy a penalty of up to 50% of the tax owed.
• Name and shame tax defaulters and evaders on HMRC's website to hamper further activities and spread awareness against illegal tax avoidance schemes.
• Tackle offshore evasion by doubling taxpayer penalties to 200% of the tax owed with a provision for further increases if they fail to comply
• Levy civil and criminal sanctions on intermediaries that promote offshore tax evasion and avoidance

See the complete list of?HMRC's powers and obligations.

Safeguards and Deterrents of HMRC's Powers

HMRC’s use of a wide range of strategies, administration, and management of all taxes is primary to ensure that it respects taxpayers' rights and meets their expectations while administering the tax system in a transparent, fair, and efficient manner. Depending on the situation, HMRC announces its decisions and offers taxpayers opportunities to challenge decisions they feel are unreasonable or unjustly applied. Please read about it in?my article on HMRC Investigations.

However, they do not have unfettered freedom. A body called the?HMRC Powers and Customer Safeguards Implementation Evaluation Forum?provides 'expert input to evaluate the implementation of HMRC powers and safeguards.'?Despite the exhaustive list of powers, HMRC does have several constraints limiting its powers, including:

• The inability to unilaterally approve a case for criminal prosecution. This decision rests with an independent prosecuting authority after a criminal investigation conducted by HMRC. HMRC is also reliant on law enforcement to conduct forensic investigations, take fingerprints, charge/bail suspected offenders, etc.
• The inability to act as the final approving authority. Most of HMRC's investigation powers require independent approval, and the approving authority has to ensure that all relevant conditions are satisfied:

1. A magistrate or judge must issue search warrants and production orders.
2. The highest authority must approve HMRC's use of its intrusive surveillance powers.
3. HMRC cannot criminally prosecute the suspect under investigation. The decision to initiate criminal proceedings rests with the appropriate independent prosecuting authority, the Crown Prosecution Service (CPS).

Increasing Tax Compliance

Boosted by the Government's ￡1 billion investment to increase tax compliance and tackle fraud and evasion of all taxes, HMRC carried out a wide range of activities to tackle the problem of tax fraud, avoidance and increase compliance across the full range of taxes, including:

• Setting up regional task forces of Higher Officers ?across the country, collecting more than ￡100 million in unpaid taxes with successful securing prosecutions across high-risk sectors and professions such as:

1. electronic equipment
2. scrap and precious metals
3. illegal tobacco and alcohol sales
4. uber drivers
5. plumbers
6. mechanics and electricians
7. doctors and dentists
8. fast-food outlet proprietors
9. exporters?

• Acting swiftly against tax offenders while sending messages via social media platforms to persuade businesses and individuals to settle their taxes affairs through HMRC-trusted tax agents voluntarily.
• Sending Financial institution notices (FIN) to onshore and offshore banks and financial institutions to check the tax positions of individuals and businesses and collect unpaid taxes.
• Campaigning against the hidden economy by increasing tax awareness and warning against evasion using omnichannel media, including telephone kiosks, billboards, and radio adverts.
• Forming agreements with overseas tax authorities to get the bank details of affluent people that launder money and hide it offshore
• Leveraging the Monitoring Serious Defaulters team to monitor the activities of serious tax evaders for five years
• Naming and shaming deliberate tax evaders on HMRC's website. The list includes the names of those who have received a penalty for intentionally providing incorrect information or non-compliance.
• Issuing financial penalties at 20%-70% of the extra tax due for deliberate tax evasion and non-compliance.
• Creating and expanding existing specialist teams to tackle the problem of wealthy taxpayers deliberately evading taxes or committing tax fraud.
• Using advanced technology and data analysis to identify high-risk cases and reduce evasion and cyber-attacks.
• Analysing credit and debit card payment information from POS and merchant acquirers across the UK using their Connect system to identify tax evasion and fraud attempts.

No one is above the law. HMRC is working with several government and law enforcement agencies to deter evasion and promote tax compliance while actively reassuring those that pay their taxes on time.

What should you do?

Given the broad scope of HMRC's powers and the intricacies of the UK tax system, it's common for businesses and individuals to fall foul of the system unintentionally. In such cases, it's advisable to consult a?tax expert?with intimate experience in HMRC investigations. An expert can help in several ways, including in situations where HMRC has overstepped its powers:

• Which power of HMRC was leveraged to decide a case, and what are the department's legal limits in the taxpayer's case?
• Why has the HMRC power been exercised?
• What were the factors taken into consideration by HMRC when making the decision?
• Did HMRC not follow or correctly apply any policy on exercising its power when making the decision?
• Who has to make the ultimate decision – HMRC or HMRC Solicitors Office?
• Is the HMRC Officer's decision in compliance with human rights and EU laws?

If you require expert tax guidance, drop me an email at [email protected].