Partner Article

Are HMRC’s new tax avoidance powers too draconian?

In any other Budget the news that HMRC will be given the power to collect debts directly from a taxpayer’s bank account – subject to what are described as “rigorous safeguards”, no details of which are yet available - would have dominated the headlines.

But this year it has been dwarfed by the announcement that HMRC is planning to collect almost £5bn over the next few years by requiring users of tax avoidance schemes to make payment on account of tax in dispute before the courts have determined whether or not the scheme works.

A number of considerations arise. The first is the scale of the issue. HMRC estimates that it will have to issue 43,000 early payment notices. Whatever one’s view of avoidance schemes, it has to be acknowledged that the system has become completely clogged up and something had to be done to deal with the backlog. But whether this is the right approach remains to be seen.

The second is that HMRC doesn’t expect the money to come in immediately. A taxpayer will have 90 days to pay once a demand is made, and as the legislation takes effect from Royal Assent in early July in theory this could mean that everybody would have to pay by the end of this year. But HMRC accepts that it will take time to get notices issued and that it will have to work very hard actually to collect the tax.

The third issue is to reflect on the constitutionality of all of this. In his speech the Chancellor made a good joke about the Miliband brothers and Magna Carta, but was this wise? Magna Carta is about the state’s right to levy taxes only on a legal basis and not merely at the whim of the Monarch.

Many believe that this new power, which includes very limited appeal rights, is dangerously close to allowing HRMC to collect taxes, if not exactly on a whim, then without the legislative certainty that Magna Carta demands. But equally there are those who feel strongly that such a power is needed to stop people taking advantage of the system.

This is really a debate about whether the end justifies the means. And we all know just how impassioned those can become.

This was posted in Bdaily's Members' News section by Baker Tilly .