The Tax Administration Framework Review: new ways to tackle non-compliance - LITRG response

This consultation is part of the government’s broad commitment to modernising and reforming the tax administration framework. It focuses on possible changes to HMRC’s existing powers and processes and the potential for a new power, with a view to improving HMRC’s approach to correcting taxpayer inaccuracies. The driver for this consultation is the increase in high volume, low value inaccuracies that HMRC has observed over the past few years.

We think HMRC should continue to carry out work on reviewing the overarching tax administration framework. Nevertheless, we think it is important that HMRC continue to address and fix problems with the existing system in the interim, where harm is being caused to taxpayers. This is to ensure trust between HMRC and taxpayers does not break down during the time taken to design and implement a new system.

HMRC make four proposals in the consultation document. Before proceeding with any of the proposals, we think it is important that HMRC clearly identify the risk, the scale, the drivers, and the cost of the existing problems. This will assist HMRC in determining whether the proposal will address the problems effectively and efficiently.

From our experience, we think it is likely that, to some extent, the increase in low value inaccuracies is driven by high volume repayment agents. So, in addition to considering the options put forward in the consultation, we think HMRC should be checking the processes of high volume repayment agents from end-to-end for compliance with basic standards for agents and electronic communications processes.

In terms of the four proposals, we think it would be worthwhile HMRC exploring whether additional information requirements would reduce the volume of inaccurate claims for tax relief. We think that HMRC need to consider whether they could make better use of their powers to issue revenue correction notices. It is not clear to us how the introduction of a partial enquiry would assist HMRC, and we think there are a number of grey areas in respect of this proposal that could cause practical difficulties. The final proposal is for a new power requiring taxpayers to self correct their return. It is not clear from the consultation how this would interact with current powers to issue revenue correction notices.