Responses to HMRC consultation on closure rules for tax enquiries
Following the closure of HMRC’s consultation document, ‘Tax Enquiries: Closure Rules’, back in March of this year, the Revenue have now published the summary of responses.
This consultation proposed enabling HMRC 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. HMRC would target the power at cases or issues involving significant tax under consideration or involving issues which are novel, complex, or have a wider impact, which can include tax avoidance. It also proposed that HMRC would expect earlier payment of tax in respect of the particular aspects successfully addressed by HMRC.
It covered several broad areas that HMRC considers creates problems and constraints within the current enquiry framework, namely:
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Flexibility – the enquiry framework can be inflexible, leading to complex tax enquiries taking a long time to settle;
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Complexity – complex cases where there is a significant tax under consideration or which involve issues which are novel or have wider impacts. As a consequence a long running issue can prevent final resolution of a simpler issue; and
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Equity – in order to resolve an issue through litigation, HMRC will ideally select a ‘representative case’ based upon the quality of evidence that it contains, as this enables the Courts to make a more principled and reasoned decision. However, current enquiry rules often mean that a ‘representative case’ is selected because it is a stand-alone example of the point at issue. As a result, multi-aspect enquiries (and in particular multi-tax scheme users) reap a benefit in being less likely to be selected for litigation than a taxpayer with straightforward affairs.
There was overwhelming disagreement with the suggestion that HMRC should be able to use the proposed legislative change unilaterally. It was felt that both parties involved in a tax enquiry should have the ability to approach the Tribunal, to seek closure of a particular aspect.
A number of suggestions were made as to how the process might work in practice, including whether the onus of proof should lie with the party seeking closure or the appellant, and whether the determining factor in closing an aspect should be the ability to quantify the tax. It was also considered that the appeal and payment processes needed to be given further consideration.
The majority of respondents also wanted greater and more explicit safeguards that the new power would be used appropriately by HMRC.
A number of respondents suggested that rather than approach the Tribunal in the first instance, a potential solution proposed that HMRC should be able to issue a partial closure notice, or for the taxpayer to be able to request HMRC to issue a partial closure notice.
There was general consensus that the current enquiry process should be improved in terms of being able to close settled aspects of enquiries. Two overwhelming views existed amongst respondents. Firstly that any partial closure power should not rest exclusively with HMRC and, secondly, that the safeguards regarding the use of any power should be more comprehensive and explicit.
HMRC proposes to proceed on the basis that there is a need to provide a partial closure provision and their aim is to legislate for such in next years Finance Bill but due to the differing views on the optimum approach, this may have to be deferred until Finance Bill 2017.
Both the consultation and responses can be viewed by clicking on the follwoing:
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