Budget 2014: Practitioners raise ethical concerns over new HMRC powers

ADVISERS have raised concerns over significant extensions to HM Revenue & Customs’ powers announced in Wednesday’s Budget.

Some had already expressed dismay over the prospect of a ‘pay up first’ policy to be applied to those involved in tax avoidance schemes disclosed under DOTAS, which critics say makes the tax-man arbiter of the tax law beyond its jurisdiction.

But amid the pre-occupation over drastic changes to pensions and ISAs more fundamental and profound changes were heading HMRC’s way.

Briefly mentioned “modern powers” in Osborne’s address and tucked away at the bottom page 81 of the Budget document was a proposal that in practice will see the taxman able to recover tax directly from debtors’ bank and building society accounts, including ISAs.

As far as HMRC is concerned, it’s likely to be an incredibly effective power and one which, alongside the ‘pay up first’ scheme could effectively drive down tax leakage.

But, practitioners warn, there is an ethical issue – and various questions around civil liberties – at play here over the prospect of HMRC conceivably having direct access to taxpayers’ accounts.

As Baker Tilly tax partner Andrew Hubbard points out, the proposal of such a power sat rather jarringly alongside the chancellor’s reference to Magna Carta given its content on the state’s right to levy taxes only on a legal basis and not merely at the whim of the monarch.

There will be, the taxman points out, a series of strong safeguards, and only a small number likely to be affected. Quite what those safeguards are, will no doubt be outlined in an upcoming consultation, but the measure will be reserved for only the most persistent tax dodgers. Moreover, HMRC notes, other government departments already hold such powers.

But the idea of ‘The Man’ sticking his hands in your wallet is particularly Orwellian. Quite apart from that, there are complex technical and security issues involved in giving HMRC the power to remove funds direct from bank accounts, while there is also the suggestion from some advisers that people and organisations move funds to foreign bank accounts where it will be much more difficult, if not impossible, for HMRC to remove funds.

How often HMRC choose to utilise that power is, clearly, something few can predict, but the fact it will sit in its arsenal is expected to have a profound chilling effect.

With a consultation document due to be produced in the near future, there is an opportunity for critics – of which there is a growing number – to attempt to curb the powers.

But given the manner in which changes such as way LLPs are treated for tax and the ‘pay up first’ scheme have been handled, there is concern that this consultation, too, may be lip service.