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Her Majesty’s Revenue & Customs (“HMRC”) are seeking new powers as follows:
1. Advance Payment – basically in any dispute between HMRC and a tax payer HMRC would be able to assess what tax they believe is due and require the tax payer to pay this as a sort of ‘refundable deposit’ until such time as the dispute is resolved through arbitration or court. Perhaps more importantly, if granted, these powers will be applied retrospectively.
Given that at the current time there are unresolved cases going back ten years or more and that once HMRC has the tax payers’ money there will be even less incentive for them to come to a resolution then this is essentially HMRC to act as judge, jury, and executioner. Isn’t this simply a ‘guilty until proven innocent’ treatment of tax payers?
2. Direct Debit – where HMRC believe that the tax payer owes them money then they will be able to simply take money directly from the tax payer’s bank account. As I understand it there will be further powers to obtain previous bank statements and this will no doubt lead to further tax investigations.
The legislation which will encapsulate these powers is currently going through Parliament, and despite opposition from lobby groups and committee members alike, HMRC seem intent upon pushing this legislation through with a view to achieving Royal ascent in mid July 2014.
Of course, should HMRC gain these powers they will hit the easy targets first i.e. those who have ‘played by the rules’ and properly disclosed everything through DOTAS, and those who operate proper business bank accounts, so it will do nothing to address those who have hidden their activities from HMRC and those who operate in the black ‘cash-in-hand’ economy.
Whilst the general public may have little sympathy for people who ‘don’t pay their fair share of tax’ (if there is such as thing – see Did Jimmy Carr just use the wrong vehicle?) we have to remember that tax avoidance is entirely legal as it simply takes the rules and regulations enacted in law and uses these to reduce a tax payer’s liability.
The new powers will do nothing to tackle tax evasion, which is illegal, and so it is no surprise that spokesmen for HMRC, and representatives for HM Government, have sought to blur the lines between legal avoidance and illegal evasion in recent times. We can be equally sure that HMRC will not be tackling the multi-nationals like Google and Starbucks who have made recent headlines with their tax affairs, and so it will (as ever) be small firms that will bear the brunt of any HMRC action.
What we shall no doubt see is an increase in non-DOTAS schemes being made available to tax payers by providers of such schemes, and I fear beyond that we shall see a rise in business insolvencies and loss of jobs, all of which will run contrary to HMRC’s aim to raise further tax revenues.
Paul Driscoll is a Chartered Management Accountant, a director of Central Accounting Limited, Cura Business Consulting Limited, Hudman Limited, and AJ Tensile Fabrications Limited, and is a board level adviser to a variety of other businesses.