HMRC switches to civil procedure

HM Revenue & Customs is to adopt a civil procedure for the investigation
of potential fraud committed by taxpayers, in the newly merged department’s
first revision of its powers.

The changes, issued to professional bodies in July, was scheduled to take
effect today, and may see the department raise more money from fraud cases as
well as fast-track the procedure.

The need for the change has come about in part as a result of the merger of
Revenue and Customs.

The old Inland Revenue had investigated cases of potential fraud through what
amounted to a criminal procedure, issuing the threat of criminal proceedings if
taxpayers did not comply with investigations. Customs & Excise had
investigated fraud cases with the threat of civil action.

The new common approach will mean the HMRC will be able to fast track the
procedure. Challenges to the criminal procedure had meant that it would have
been forced to adopt all of the paraphernalia of criminal investigations,
including reading rights to people and taping interviews in full.

The reforms are likely to raise revenue, since criminal threats, though
rarely exercised, were discouraging disclosures.

HMRC investigations began with a reading from Hansard, a process that,
according to a recent case, carried the threat of criminal proceedings. The
Revenue has now clarified that only civil proceedings will result.

The ICAEW has welcomed the move, subject to some reservations.

Jane Moore, technical manager of the ICAEW’s tax faculty, said:
‘Practitioners generally agreed that the reading of rights, amongst other
things, was bogging down investigations. But we want the Treasury to be more
upfront about the concerns that have prompted the questions.’

The ICAEW also wants it to be made clear to taxpayers that ‘non-cooperation
is not a soft option’ – the lack of a jail sentence to threaten taxpayers might
be seen as a softer option.

The move is the first attempt HMRC has made towards modernising its powers. A
consultation on the new powers was launched earlier this year to assess possible
changes to the range of powers of the authorities and rights of taxpayers, after
some had suggested that the Revenue might be tempted to take on the strong-arm
tactics of Customs & Excise in its investigations.

Practitioners are broadly pushing for a taxpayers’ bill of rights to define
limitations to the executive’s powers over tax collection.