A new report, by the House of Lords economic affairs committee, is particularly critical of the disguised remuneration loan charge; proposed changes to HMRC's time limit for assessing offshore tax matters; and "draconian" penalties associated with the General Anti-Abuse Rule and follower notices. It is also calling for greater oversight of HMRC by the Adjudicator's Office, which hears complaints about HMRC; and for a review of whether HMRC's powers are subject to sufficient scrutiny by parliament.
Committee chair Lord Forsyth said that a "careful balance" needed to be struck between "clamping down and treating taxpayers fairly".
"Since 2012, perhaps due to reduced resources, HMRC has been granted some broad, disproportionate powers without effective taxpayer safeguards," he said. "We need to work together to build new principles for the tax system, taking a tough approach to tax avoidance while treating taxpayers fairly."
Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, who gave evidence to the committee, said: "Obviously the House of Lords has no real constitutional power in relation to fiscal matters, but the fact that it has made recommendations in such clear terms reflects that a lot of practitioners and taxpayers are concerned that the rhetoric from all political parties against avoidance and evasion has left an open field for HMRC to grab powers without proper oversight or accountability."
"One of the worst aspects of the last few years has been the addition of powers bit by bit when, if they had been introduced all at the same time, their introduction would have been more stark and probably resisted," he said.
A new tax charge, payable by users of disguised remuneration agreements or 'contractor loan' schemes, comes into force in April 2019. These schemes, which in HMRC's view are designed to avoid income tax and national insurance contributions (NICs), involve an employee or contractor receiving a loan or other payment from a third party, such as a remuneration trust or employee benefit trust (EBT). The charge will apply to such loans granted on or after 6 April 1999 that have not been repaid, unless the individual has agreed a settlement with HMRC.
The committee, in its report, was particularly critical of the retrospective nature of this charge, which it said applied to "years which should be closed to enquiry" given HMRC's statutory four, six and 20 year time limits for investigating tax affairs. It also heard evidence that the charge will be applied "disproportionately" to "unrepresented and lower income taxpayers", who in many cases had been required to use disguised remuneration schemes by their employers. It is calling on HMRC to set up a dedicated helpline, and to urgently review all loan charge cases where the only remaining consideration is the individual's ability to pay "well in advance" of April 2019.
The report also calls on the government to withdraw two proposed additional HMRC powers: extending investigative time limits to 12 years where offshore matters are concerned, which the committee describes as "unreasonably onerous and disproportionate to the risk"; and allowing HMRC to require information about taxpayers from third parties, such as financial institutions, without the oversight of the tax tribunal. HMRC has "not offered a convincing rationale" for why the safeguard of tax tribunal oversight should be removed, the committee said.
The committee noted in its report that HMRC's powers had increased at the same time as it was being asked by ministers to "collect more tax with fewer staff".
"These cultural drivers may have pressured staff to take a more aggressive approach to tax collection, and in doing so impaired the ability to be fair to taxpayers," it said.