Treasury Select Committee criticises retrospective tax collection

Tuesday 13 May 2014

A government plan to force debtors to pay upfront any disputed tax associated with avoidance schemes has been criticised by the Treasury Select Committee.

Officials claim the retrospective measure has not been fully justified and goes against its previous recommendations.

Up to 65,000 people are likely to be affected by the new proposals if they are made law, signalling further to those setting up a business the importance of tax compliance.

HM Revenue and Customs (HMRC) is hoping that its power to force people and companies to pay tax in dispute during an enquiry or appeal relating to avoidance of that tax will be extended to contractors.

However, the Treasury Select Committee has "deep reservations" about such a move, because the government hasn't explained what will be "wholly exceptional" about the cases that justifies the measures.

"In our Budget 2012 Report we recommended that the government restrict the use of retrospection to wholly exceptional circumstances. Witnesses told us that the government was not abiding by this recommendation," the Committee explained in a report.

This isn't the first time the Treasury Select Committee has taken umbrage against the coalition's tax plans.

Indeed, officials have claimed that there are uncertainties surrounding the fiscal effects of the government's tax avoidance measures.

Speaking prior to the Budget, the Committee claimed more needed to be done to investigate how officials project revenues in order to better target  cost effective measures that crackdown on avoidance.

Chair of the Treasury Committee, Andrew Tyrie, explained: "Forecasts of additional revenue from many anti-avoidance measures are inherently extremely uncertain."

This is because what can be learned from previous policies is restricted, making it difficult to ascertain whether costings are suitable to the task at hand.

The Committee has also spoken out against the government's Direct Recovery of Debts plans, which enable HMRC to take money owed over the sum of £1,000 directly from the debtor's bank account, building society account or ISA.

"This policy is highly dependent on HMRC's ability accurately to determine which taxpayers owe money and what amounts they owe, an ability not always demonstrated in the past," the Committee explained.

It added that incorrectly retrieving money will harm taxpayers and additional safeguards beyond those suggested by the government need to be created.

This might include damages, in addition to compensation in instances of abuse of power. Disciplinary action has also been suggested.

In instances where HMRC would move to recover tax, the individual or business in question is able to appeal HMRC's decision.

The taxpayer can seek a review of the case by HMRC or an independent tribunal. For this to be accepted, the debtor must send an appeal to HMRC in writing within 30 days of the date of the initial HMRC correspondence.

When this is submitted, the taxpayer can apply to postpone paying the amount of tax they owe. However, interest will still be accrued on the tax until the case is resolved and the sum settled with HMRC.


By Victoria McDonnell

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