Modernising Powers, Deterrents and Safeguards Payments, Repayments and Debt: Responses to Consultation and Proposals Response by the Chartered Institute of Taxation 1. Introduction 1.1. The Chartered Institute of Taxation is pleased to be able to comment on Modernising Powers, Deterrents and Safeguards: Payments, Repayments and Debt: Responses to Consultation and Proposals. 1.2. The Chartered Institute of Taxation (CIOT) is a registered charity (number 1037771) and is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT deals with all aspects of direct and indirect taxation. Its primary purpose is to promote education in and the study of the administration and practice of taxation. One of its key aims is to achieve a better, more efficient, tax system for all affected by it - taxpayers, advisers and the authorities. The CIOT s comments and recommendations on tax issues are made solely in order to achieve its aims: it is entirely apolitical in its work. The 14,000 members of the CIOT have the practising title of Chartered Tax Adviser. 2. Executive summary 2.1. The general aim of removing the inconsistency in enforcement powers is sensible and the legislation seems appropriate. 2.1.1. Items not taken forward We note that only four of the initial nine proposals are being taken forward at this stage and that HM Revenue & Customs (HMRC) are looking further at those not so far taken forward. The CIOT assumes that the comments we and other respondents made on these issues will be carefully considered, and are pleased to note HMRC s effective agreement that more thought is required before HMRC move forward with them. We would appreciate an interim update on progress on these items before too long.
2.2. Removing inconsistencies in HMRC s current enforcement powers 2.2.1. As stated in our previous response, we are in favour of alignment of the enforcement powers as a matter of principle. We think this will produce a simplification dividend and, probably, reduced costs. 2.2.2. Draft legislation The reference to transitional provisions at section 1 sub-section 6 needs clarification as no details have been provided. 2.2.2.1. It would be preferable for new legislation to be drafted replacing the old, as opposed to merely adding further layers of additional powers and complexity. 2.3. Setting-off repayments of one tax against debts of another 2.3.1. We welcome the commitment in paragraph 2.16 to the effect that tax credits will not be used to reduce a tax debt. We assume this undertaking also covers child benefits. However, we do have concerns about the wording of the legislation. This seems to be drafted so widely as to include everything without restriction: perhaps HMRC could clarify the restriction. 2.3.2. Taxpayer choice / agreement We are concerned that, despite previous responses, HMRC have reserved the right to decide how and when a set-off is undertaken to themselves. 2.3.3. Accounting systems We would reiterate the point made in our previous response that HMRC need to evidence the rigorousness of their accounting systems before moving forward with these proposals. 2.3.4. Other legislation There does not appear to have been a review of the existing general law rights of set-off available, nor an attempt to encompass these within the new proposals. 2.4. Accepting payment by credit card 2.4.1. Additional safeguards Safeguards should be reflected in the legislation as opposed to merely being internal guidance where they may not always be followed. 2.4.2 As a minimum, HMRC should include within legislation that any charge made to the taxpayer will not exceed the charge to HMRC. 2.5. Collecting small debts through pay as you earn 2.5.1. Existing problems within self-assessment (SA) and PAYE will need to be addressed fully before this can be justified. At the very least, this should only be undertaken at the taxpayer s request. 3. Removing inconsistencies in HMRC s current enforcement powers 3.1. We are supportive of the aim to remove the inconsistency in enforcement powers. This is sensible and the legislation seems appropriate. P/bc/subsfinal/MoT 2 6.3.08
3.2. It is unfortunate that the safeguards noted in Annex A are not specific. Specific safeguards are required to protect the taxpayer, and these should be in primary legislation. 3.3. In removing the inconsistencies, HMRC should not be less or more advantaged and should not become a preferential creditor either legally or in practice. 3.4. Draft legislation In the main, this seems to follow the stated intention. However, we should be grateful for clarification of section 1 sub-section 6, which notes that an order under section 1 sub-section 5 may make transitional provisions and savings. Perhaps HMRC would clarify what transitional provisions are proposed or being considered. 3.5. The draft legislation provides additional powers for enforcement and court proceedings; however, there is no note as to what it is replacing. Alignment and simplification will be better achieved by reviewing all relevant legislation and drafting new encompassing law to replace it, as opposed to merely adding another layer of additional powers which may overlap and confuse. 4. Setting-off repayments of one tax against debts of another 4.1. Tax Credits included in set-off system The previous consultation document noted at paragraph 3.13 that offsets involving tax credits and child benefit would be ruled out. However, paragraph 2.16 of the current consultation document reverses this and notes that repayments may be used to reduce the amount of overpaid tax credits. Given the significant and highly publicised errors related to the tax credit system, we do not believe the system is robust enough to be included within any proposed set-off structure. 4.2. We are disappointed that, despite many objections, the right to effect a set-off has been retained by HMRC solely. This is a serious flaw which will cause significant problems administratively, to agents and taxpayers where they are unaware of HMRC s intention to set off and take other action which then needs to be undone, and, on a practical cash flow basis generally, to the taxpayer. It is also not something that creates simplification and clarity. We feel very strongly that this needs to be reversed. 4.3. The new section 3 does not appear to include provision to give effect to the charitable assignment noted at paragraph 2.17. In fact, sub-section 7 notes any assignment is to be disregarded. 4.4. We are concerned that the new section 3 appears to give HMRC the power to set off amounts that are purported or anticipated, (section 3 sub-section 6) as opposed to actually agreed amounts. This is wholly unreasonable and unacceptable. Set-off should only take place where liabilities are agreed and not on the basis of HMRC s expectations. 4.5. We are also concerned that the draft legislation does not include the requirements for set-off to be undertaken in an order most benefiting the taxpayer, so as to limit penalties, surcharges and interest applying. 4.6. Existing rights of set-off under common law do not appear to have been P/bc/subsfinal/MoT 3 6.3.08
considered. The result will mean an extra layer of administration and a lack of clarity and certainty for the taxpayer. We would suggest that the set-off process is reviewed in the context of the general law of set-off as opposed to separately adding further powers which run the risk of overlapping or conflicting. 4.7. We are pleased that further consideration is to be given to set-off with related parties, as we feel this could be challenging and could be impacted upon by other consultations currently ongoing. 5. Accepting payment by credit card 5.1. The acceptance of payment by credit cards is well set out and we feel that the warning signals are appropriate. 5.2. We are pleased with the additional safeguards proposed, especially the undertaking not to apply pressure where payment by other means is not possible. However, we do feel this should be reflected as a right in the legislation rather than being internal guidance which may or may not be followed in all cases. The method of payment should at all times remain the taxpayer's choice. 5.3. We remain concerned at the proposals to pass on the transaction fee to the taxpayer. As mentioned previously, this effectively increases his tax rate. Although we accept that other taxpayers should not bear the cost of the transaction fee, we feel that the cost savings and certainty, combined with admin savings, should cover the fee and be absorbable by HMRC. We would point out that, where significant chasing action is undertaken by a Collector (short of taking proceedings in court), no additional fee is rendered and these admin costs would be reduced where flexible payment is available. 5.4. We are concerned that the new legislation does not restrict the fee charge to the same level (or less) as that incurred by HMRC. 5.5. Data security would be an issue and does not appear to have been addressed sufficiently within the proposals or the draft legislation. Where HMRC are holding credit card information the potential for fraud would, of course, be far higher than with purely personal data. 6. Collecting small debts through pay as you earn 6.1. We understand the concept of collecting debts through PAYE and believe this is sensible. 6.2. We are concerned at the extent to which HMRC will warn people in advance of what is going on and make it clear that they do not have to accept this treatment. 6.3. Existing problems within Self Assessment (SA) and PAYE Given the problems and significant increases in admin caused by incorrect coding out and automatically carried forward underpayments which have not been verified or agreed, we feel this should only be taken forward at the request of the taxpayer. We are aware that there are significant problems of interaction between the SA and PAYE systems, and these would need to be P/bc/subsfinal/MoT 4 6.3.08
fully addressed before moving forward. 6.4. The impact assessment notes that it will be at their (HMRC s) discretion to collect small debts. The impact assessment then goes on to clarify small debts as being up to 50% of gross pay. We do not feel this is appropriate, and would urge HMRC to look again at this issue and the fact that 50% of gross pay is a large amount to an individual taxpayer. The Chartered Institute of Taxation 6 March 2008 P/bc/subsfinal/MoT 5 6.3.08