Crackdown 'leaves taxpayers unprotected'

Crackdown 'leaves taxpayers unprotected'

HM Revenue & Customs inspectors are to gain new powers to investigate and fine taxpayers, but safeguards for individuals and businesses will not come into effect until at least four months later.

Accountancy and tax bodies said the "get tough" regime should be delayed until a charter is in place to protect taxpayers. They also argued the charter should be a statute, similar to a bill of rights, rather than the currently proposed statement of good practice.

HMRC will acquire powers next year to enter business premises and private homes used for business. For errors that are "careless, but non-deliberate", penalties worth up to 30% of an unpaid tax bill can be levied. Fines worth 70% of the final tax bill could be imposed should officials believe the taxpayer deliberately ignored the need to make a payment. Deliberate concealment could trigger fines worth 100% of the final tax bill. The new powers, outlined in the Finance Act, are due to come into effect on April 1 2009.

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Tax officers will gain powers to inspect and remove information and documents, while the Treasury will limit the amount taxpayers can reclaim in wrongly paid tax from six to four years. Income tax, capital gains tax, VAT and stamp duty tax will be among payments covered by the new regime. Fines can be imposed from March 2009 on tax bills calculated from March 2008.

A charter to protect taxpayers from over-zealous inspectors is not due to complete its consultation phase until at least July next year. Publication and distribution of the charter is unlikely until late 2009 or 2010.

The Association of Chartered Certified Accountants said the new powers should be delayed until 2010 when the charter is sent to all taxpayers.

The Low Income Tax Reform Group (LITRG), which has called for a charter for years, said HMRC needed to step back from the brink of a battle against ordinary taxpayers.

The Institute of Taxation, which represents many of the country's leading tax advisers, also urged the government to delay the new powers.

Robin Williamson, of the LITRG, said: "When you talk to the policy strategists at HMRC they say the regime is benign and all their staff follow the rules, but we find ordinary taxpayers have a very different experience on the ground."

Accountants UHY Hacker Young said even with a charter the new regime was too severe and could lead to taxpayers being bankrupted.

Roy Maugham, a partner at the firm, said: "These are hugely draconian proposals that would allow the Treasury to unjustly enrich itself at the expense of individual taxpayers. The banks have been criticised for their unfair charges, but if the banks shouldn't operate in this way, why should HMRC?"

He cited in particular proposals for inspectors to levy daily fines on taxpayers who fail to file their returns on time, without obtaining the prior authorisation of the general or special commissioners, which is required at present.

Penalties of up to 100% of tax owed for late filing would allow HMRC to claw in significantly more than the surcharge system currently in operation, which stipulates two charges of 5% of tax owed on top of interest, Maugham said.

"Permitting HMRC to issue daily fines without authorisation from the general or special commissioners would remove a vital legal protection for taxpayers against the arbitrary use of power. Regardless of whether taxpayers could appeal, the balance is shifted firmly in HMRC's favour, and would inevitably result in greater use of daily fines."

A spokesman for HMRC said that while the consultation process would mean the charter could not be agreed until July next year, taxpayers were protected by current safeguards and able to appeal to the adjudicator's office against the decisions of an individual tax office or inspector.

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