27/03/18

HMRC faces probe over tax collecting powers

(FT Adviser) -- The Treasury select committee is asking for evidence on how HM Revenue & Customs deals with tax enquiries and the resolution of tax disputes.

The call for evidence is part of three wide-ranging reviews into Britain's tax system by the influential committee that will cover everything from value added tax to whether the tax office treats companies and individuals differently in an unfair manner.

The committee reported it is inviting written submissions dealing with how HMRC governance and settlement processes affect its ability to resolve tax disputes in a proportionate and fair way.

The MPs will also look into whether the tax office's collection and management powers result in fair outcomes and whether its approach to tax compliance leads to disproportionate and unjust results.

The committee will also investigate the tax gap in VAT, where HMRC collects significantly less value-added tax (VAT) than it estimates it should every year.

The request for evidence comes after HMRC launched a number of well publicised crackdowns on tax avoidance, including on offshore trusts.

Nicky Morgan MP, chairman of the Treasury select committee, said: "HMRC collected around £124bn in VAT last year – over a fifth of the UK's total tax take – and failed to collect around £12.6bn in VAT.

"The reasons for why VAT is so vulnerable are somewhat opaque, so the committee will examine how this might be addressed.

"Brexit may provide both opportunities and challenges to the UK's approach to VAT. The government may choose to stick to a broadly similar structure to what currently exists, change it, or abolish it completely.

"We will examine the chief concerns for HMRC and businesses going forward, and what impact Brexit will have on HMRC's efforts to reduce the VAT element of the tax gap."

At the start of this year law firms slammed the taxman's "inflexible bureaucratic approach" amidst reports HMRC takes an average of nearly three years to investigate larger businesses.

Figures from law firm Pinsent Masons, showed HMRC's investigations into large companies took 34 months on average in the year to the end of March 2017, up from 31 months in the previous financial year.

Miles Dean, managing partner of Milestone International Tax said tax inquiries are becoming more complex and the need for specialist staff can add months to an investigation.

Back in 2016, a City law firm complained HM Revenue & Customs failed to use the powers it already has despite seeking new ones.

Fewer than five conduct notices were issued to promoters of tax avoidance schemes since the power was introduced in 2014.

Conduct notices allow HMRC to impose strict conditions on a promoter, with fines of up to £1m payable if they are not complied with.