Chartered Accountants Ireland

CA House

47–49 Pearse Street

Dublin 2

Private and confidential

Angela Roach,

HM Revenue and Customs,

Central Policy,

Tax Administration Policy,

Room 1C/06,

100 Parliament Street,

London

SW1A 2BQ

23 February 2015

Dear Angela,

Tax Enquiries: Closure Rules

Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation document published on 18 December 2014. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided here.

We would be happy to discuss any aspect of these comments and to take part in any further consultations/initiatives in this area that there may be in the future.

We wish to briefly comment on this consultation and the proposed power that would enable HM Revenue & Customs to refer matters to the Tribunal with a view to achieving early resolution of one or more aspects of an enquiry into a tax return. The proposal also includes changes to rules governing payment, to allow earlier payment to be achieved in respect of the aspects of the enquiry successfully concluded by HMRC under the proposed power.

Power to tackle tax avoidance

The consultation states that this proposal is designed “to reflect the complex nature of contemporary tax affairs and to modernise the administration of the tax system by increasing flexibility”. It seems to us that at the heart of this consultation is HMRC having the ability to more quickly collect the tax at stake on matters it wishes to resolve early.

Chartered Accountants Ireland agrees that HMRC should have the powers it needs to tackle tax avoidance effectively. However, we have some concerns about these proposals.

Taxpayer rights

Firstly, there is no proposal for an equivalent power for taxpayers who want to resolve individual matters early where HMRC does not agree these should be taken to a tribunal. There are many reasons why enquiries can take a long period of time to conclude. Whilst in some cases deliberate delay by the taxpayer might be a tactic used, it cannot be said that HMRC itself is not sometimes equally responsible for delays in the resolution of tax enquiries.

We can understand why HMRC wants to speed up resolution of complex issues, but we think the taxpayer should have equal symmetrical rights to seek closure of a single issue. It would simply be unfair if taxpayers were not also given the right to refer single issues from tax enquiries to the tax tribunal for determination.

Giving HMRC such a unilateral right would mean the selection of matters for early resolution would be entirely up to HMRC. HMRC would have the discretion to select those matters most in its favour to yield tax earlier whilst perhaps leaving those which might reduce the liability open until the issue of the final closure notice. This does not sit well with Charter Right 4 of “Your Charter”.

Single compliance process

While we can see that closing aspects of an enquiry early might be helpful in order to allow the parties to focus on the major issues in the enquiry, the existing system already allows for that provided both parties agree. The consultation is focused on the inflexible nature of enquiries and the length of time taken to settle. We would suggest that the Single Compliance Process for small and medium sized businesses which was introduced in 2013 after a trial period is designed to tackle those issues and HMRC should perhaps consider extending this to all sizes of business; again after a trial period.

Piecemeal resolution of enquiries could result in even further uncertainty for taxpayers and could add to their compliance burden and costs, by having to deal with a separate tribunal case at the same time as an ongoing enquiry.

Tribunal system

If such a power is granted in order to expedite enquiries, it will be important to ensure the process does not become further mired in the Tribunal system. Will the Tribunal system be adequately resourced to cope with the additional influx of potential cases that may arise? The Tribunal system is already facing a significant backlog of cases, as official statistical publications denote, and this could lead to further uncertainties and delays for taxpayers.

Appeal rights and safeguards

We welcome the right of appeal against a Tribunal referral notice provided for at part 4 of the consultation document. It also seems only right that both taxpayers and HMRC will have the usual right of appeal against a decision of the tribunal. The consultation document does mention other safeguards, however, we assume these will be not be enshrined in the relevant legislation. This point might be clarified.

In addition, whilst the examples provided at Annex C of the consultation document are helpful, more clarity is needed around the specific types of issues that would be the subject of this power. A “materiality” concept should be considered to ensure small trivial matters under enquiry are not caught by these proposals.

Conclusion

As an overall point we question the need for the power proposed given the recent introduction of the legislation on Accelerated Payment Notices (APNs). In cases where a taxpayer has used an avoidance scheme and:

• there is a current compliance check (i.e. tax enquiry) into the return or claim, or there is an open appeal;
• the return or claim, or the appeal is made on the basis that there is a tax advantage from the avoidance scheme used

and one or more of certain conditions applies, HMRC have the ability to use APNs to collect the tax due in relation to that particular matter. Where a follower notice has been issued to the taxpayer that provides another opportunity for HMRC to issue an APN. We contend that the power proposed in this consultation is therefore not required given that it is most likely to be used in avoidance enquiry cases.

Freedom of Information

We note the scope of the Freedom of Information Act in regard to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website and will be available to all of our members and the general public.

Do not hesitate to contact Brian Keegan brian.keegan@charteredaccountants.ie or Leontia Doran leontia.doran@charteredaccountants.ie of this office should you require anything further.

Yours sincerely,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland

Source: Chartered Accountants Ireland. www.charteredaccountants.ie.