In recent years, HMRC has been granted greater powers to tackle tax avoidance and evasion. Every taxpayer has a duty to pay the tax they owe, and deliberate tax evasion or aggressive avoidance are unfair to the vast majority of taxpayers, who pay their taxes in full and on time.
The Committee calls for the oversight of HMRC and its powers to be reviewed. The report also recommends that consideration should be given to widening the remit of the Adjudicator's Office, and to oblige HMRC to follow its recommendations. The Committee has also recommended that Parliament considers how it can improve the scrutiny of the powers being given to HMRC and how it uses those powers.
Lord Forsyth of Drumlean, Chairman of the House of Lords Economic Affairs Committee, said:
"HMRC is right to tackle tax evasion and aggressive tax avoidance. However, a careful balance must be struck between clamping down and treating taxpayers fairly. Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer should expect.
"Since 2012, perhaps due to reduced resources, HMRC has been granted some broad, disproportionate powers without effective taxpayer safeguards. High penalties, designed to deter some taxpayers from continuing appeals against tax liabilities, are a tax on justice.
"Some of these powers disproportionately affect unrepresented and lower income taxpayers. We took some disturbing evidence on the Government’s approach to the loan charge. This is devastating the lives of middle and lower income individuals, from the private and public sector (including the National Health Service) who used disguised remuneration schemes, in many cases being required to do so by their employers. The charge is retrospective in its effect, claiming tax from years which should be closed to enquiry. We have included some of the personal accounts submitted to us as written evidence as an appendix to our report.
"Clauses 79 and 80 of this year’s Finance Bill would introduce another disproportionate power. Extending HMRC’s time limits for assessing offshore matters to 12 years would place an unreasonable burden on a disproportionate number of taxpayers, who would be required to retain records for two or three times longer than currently.
"We need to work together to build new principles for the tax system, taking a tough approach to tax avoidance while treating taxpayers fairly. We recommend a new review of HMRC powers, and an independent review to consider new oversight arrangements for HMRC."
Other report findings include:
- The Government should consider widening the role of HMRC's Adjudicator or increasing HMRC obligations to respond to and act on Adjudicator recommendations.
- HMRC should urgently review all loan charge cases where the only remaining consideration is the individual's ability to pay, and establish a dedicated helpline to give those affected by the loan charge advice and support. Such action should take place well in advance of the loan charge coming into effect in April 2019.
- The Government should withdraw clauses 79 and 80 of the Finance Bill, which would extend HMRC time limits to assess offshore matters to 12 years.
- The Government should withdraw its proposal, for which consultation closed in October, to remove oversight of the tax tribunal from HMRC access to information about taxpayers from third parties.
- Penalties associated with General Anti-Abuse Rule and Follower Notices restrict access to justice and should be abolished.
The Government should legislate to give the First-tier Tribunal (Tax) the power to conduct judicial reviews.
- The Treasury should assess whether HMRC is adequately resourced to fulfil its Charter obligations in the next Spending Review.