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Following the creation of HM Revenue &
Customs in 2005 there has been a review of its approach to tax compliance.
The stated aim has been to develop a unified approach, applicable to all
taxes administered by HMRC.
New inspection powers
Finance Bill 2008 will
introduce changes which will affect all businesses with effect from 1 April
2009.
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New statutory record keeping
requirements
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New HMRC inspection and information
powers. It is proposed that these powers will replace the existing
inspection powers for Corporation Tax, Income Tax and VAT
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Changes to the time limits for making
assessments and claims
Amongst the new
powers which HMRC will gain as a result of these changes are:
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The power to inspect records at
business premises
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The power to request both taxpayers
and third parties to supply information
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New penalties
for failing to comply with HMRC’s requests
The Budget
announcement makes reference to the consultation document and draft clauses
which were published by HMRC on 10th January.
Amongst the detailed measures are
proposals to allow HMRC to exercise its new powers of inspection before the
filing of a tax return so that businesses could be subjected to ‘in year’
records inspections for all taxes. Where HMRC considers that there are
significant risks of tax evasion, it will have a new power to make
unannounced visits to business premises without the need to obtain a search
warrant from a Court beforehand.
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Our View
These measures are significant and wide ranging. While some, such as the
harmonisation of assessing time limits are welcome, there must be
concerns about the increases in HMRC’s powers and whether these will be
matched by safeguards for taxpayers. Businesses will be particularly
concerned by the uncertainty and compliance costs which could be
generated by HMRC inspections in advance of the filing of accounts or a
tax return. The fact that HMRC will be allowed to formally request
information from third parties (who will risk penalties for failure to
do so) without external authorisation is also an extension of HMRC’s
powers. Deloitte has already expressed its concern regarding the
increase in HMRC’s powers. It is to be hoped that additional taxpayer
safeguards can be agreed prior to the changes being implemented. |
Changes in the tax penalty
regime
The 2007 Budget announced
unified tax penalty regime applicable to Corporation Tax, Income Tax,
Capital Gains Tax and VAT. Where an incorrect return is submitted, either
deliberately, or through a failure to take reasonable care, a penalty of up
to 100% of the tax understated may be charged. The 2008 Budget both extends
this regime to a variety of other taxes administered by HMRC (including
environmental taxes, excise duties, stamp duties, inheritance tax, insurance
premium tax, and petroleum revenue tax) and also to where a new business
fails to notify HMRC of the commencement of a taxable activity in good time.
The Budget also introduces a new penalty which may be charged on a third
party who deliberately either provides false information or who withholds
information from the person who has to submit the tax return. The changes
will be set out in Finance Bill 2008 and HMRC will continue with public
consultation in advance of their anticipated implementation in 2009.
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Our View
The extension of the
new penalty regime across the taxes administered by HMRC was to be
expected. However, there must be concerns regarding the imposition of
significant penalties (up to 100% of the tax) on third parties who have
provided information to another and who may have no legal obligation as
regards the tax return submitted. This is a significant extension to
HMRC’s approach to penalties which could affect, for example,
beneficiaries of a deceased’s estate who provide incorrect information
to the personal representative who is responsible for filing the tax
returns. |
New arrangements for the collection of
tax debts
Finance Bill 2008 will introduce a range
of measures altering the methods by which:
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Taxpayers may
settle debts (for example, by credit card)
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The arrangements
by which debts or repayments may be set off against each other
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Change HMRC’s
civil debt enforcement powers, including court proceedings, and new
powers in England & Wales to take control of goods
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Enable HMRC to
collect small debts via PAYE
The changes follow the consultation
documents and draft clauses which were published by
HMRC on 10th
January 2008.
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Our View
The proposed changes
represent harmonisation of HMRC’s various inherited powers rather than
any substantial extension of them. It will be important however for
taxpayer safeguards against any unwarranted enforcement actions to be
maintained. |
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