A discussion paper by Tracey Bowler for the Tax Law Review Committee, a Committee of the Institute for Fiscal Studies, was released in November and focuses upon ‘new’ HMRC powers. Vanessa Houlder gives an overview of the paper in a piece for the Financial Times yesterday. Both the report and Houlder’s article are worth reading.

The report makes two important contributions that this post will focus on. The first is that the paper makes clear that the nature of HMRC powers has changed in recent years. The background to the report is that HMRC over the past 10 years has acquired new powers to tackle tax avoidance. But these powers differ from traditional HMRC powers which are directed towards obtaining information and imposing penalties for non-compliance. Instead these new powers seek to nudge taxpayers away from tax avoidance activities and also away from delaying the collection of tax by engaging in litigation. The report cites the Bank Tax Code as heralding a “new approach to HMRC’s powers” accordingly (though the DOTAS regime came in some years prior). The past three years has seen the placing of significant “nudging” powers in the hands of HMRC – for instance, to require the upfront payment of tax due (APNs and PPNs), to require taxpayers to follow judicial decisions or face a penalty for failing to do so (Follower Notices), to penalise taxpayers who fall foul of the GAAR (GAAR penalties), and to penalise ‘serial’ tax avoiders by naming and shaming, issuing fiscal penalties and restricting tax relief (serial avoiders scheme). These are the powers that the Bowler paper focuses on, though one could also examine under this heading of new powers other initiatives such as the DPT and POTAS regime.

Secondly, the paper considers the safeguards in connection with these new powers to be inadequate. It notes that:

“Traditionally, the main independent safeguard to control the power of an administrative body such as HMRC has been the granting of appeal rights to the tribunals and courts. The New Powers have avoided that approach. Although the taxpayer retains the right to appeal the underlying tax assessment, there is no appeal right in relation to the use of the New Powers”

This is an important observation. But what also follows from having broad, intrusive powers without traditional rights of appeal is that the courts will generally apply a restrictive reading of the powers. This has already occurred in the case of APNs and PPNs. Put another way, where legislation does not provide safeguards against powers, the courts will generally intervene to introduce them unless the statute is worded to specifically preclude the courts from doing so. The litigation in this area accordingly is likely to produce interesting assessments of the scope of HMRC’s ‘new’ powers.