Rewrite required – not another sticking plaster
The Finance Bill applies another sticking plaster to patch up the Taxes Management Act (TMA) – but this will not solve the underlying problems. TMA needs to be rewritten, consolidated and updated for developments since 1970.
What is wrong with the Taxes Management Act 1970?
An unsuspecting taxpayer might assume that the Taxes Management Act 1970 (TMA) would tell them all they needed to know about complying with their tax obligations – and HMRC’s powers to enforce that compliance. The reality of course is different. Since 1970 there have been major upheavals in the rules for assessing and collecting tax, including the introduction of self assessment and the wide-ranging changes arising from the review of HMRC powers, deterrents and safeguards between 2005 and 2012.
TMA has been extensively amended but there is also legislation scattered across numerous Finance Acts – not to mention various regulations. It can be difficult to track down all the relevant provisions relating to administrative and compliance issues, and to understand how the legislation applies to a taxpayer’s specific circumstances.
Furthermore, the legislation is not written in a user-friendly style – TMA was not one of the tax statutes rewritten by the Tax Law Rewrite project between 1996 and 2010. The project sought to make tax legislation clearer and easier for taxpayers to understand by reordering the legislation, using modern language and shorter sentences, and providing consistent definitions and clearer signposting.
Apart from missing out on the rewrite project, TMA has also failed to keep up with technological developments and with new approaches to tax. The basic provisions relating to assessing tax were written long before anyone envisaged the widespread use of computers by both HMRC and taxpayers. Similarly, they were not written with High Income Child Benefit Charge (HICBC) or charges on unauthorised pension scheme payments in mind. Patching up a creaking TMA is on the way to becoming a regular feature of the annual Finance Act.
The latest sticking plaster
The Finance Bill published on 4 November includes clauses to ‘put beyond doubt’ that HMRC may use discovery assessments to recover certain tax charges, including the HICBC. As discussed in detail in a separate article, following a recent decision of the Upper Tribunal, HMRC’s ability to raise discovery assessments to recover HICBC and certain other charges relating to gift aid and pension schemes has been thrown into doubt. HMRC is appealing against the decision, but the Finance Bill clauses ensure that, regardless of the outcome of the appeal, discovery assessments continue to be effective in these cases. The ‘clarification’ applies with retrospective effect (subject to limited exclusions where appeals against discovery assessments had been filed on or before 30 June 2021, the date of the Tribunal decision).
In addition to clarifying the position on discovery assessments, the Finance Bill clauses also provide, with prospective effect:
- that discovery assessments may be used to recover any income tax or capital gains tax that ought to have been assessed but has not been assessed; and
- that section 7 of TMA 1970 will be revised to confirm that individuals who are chargeable to various specified income tax charges need to notify chargeability to HMRC.
We have been here before….
This is not the first time HMRC has faced a challenge to its approach – and the government has resorted to patching up TMA to ‘clarify’ the position.
The Finance Act 2020 included legislation to confirm that HMRC’s use of large-scale automated processes was, and always had been, in line with the law. By 2020 HMRC was making extensive use of computers to carry out routine tasks, such as giving statutory notices (for example, notices to file returns), ‘correcting’ taxpayer returns and imposing penalties, where making individual decisions in individual cases would be ‘impractical, resource intensive, or simply unnecessary’. After HMRC lost a couple of cases at the First Tier Tribunal, the government announced that it would legislate to ensure HMRC’s approach had a firm legal footing and the FA 2020 provisions followed.
Previously, the Finance Act 2019 included a section to ensure that HMRC’s practice of accepting voluntary income tax and corporation tax self assessment returns as valid returns could continue. Again, HMRC’s practice, which had been in place since the introduction of self assessment, had been challenged in several cases at the First Tier Tribunal, so the Finance Act provided, with retrospective effect, that voluntary self assessment returns were valid and effective.
Modernising tax administration – and the Taxes Management Act
Last year the government published its 10-year strategy for creating a tax system ‘fit for the challenges and opportunities of the 21st century’ – followed by a call for evidence on the tax administration framework.
ICAS responded with a report setting out our top ten priorities for tax administration. One of our priorities is that the Taxes Management Act should be rewritten in the user-friendly style of the Tax Law Rewrite project, consolidated so that all the main provisions are in one place, and brought up to date for technological and other developments since 1970. A modern tax administration system cannot be based on the shaky foundations of a 20th century act which is no longer fit for purpose and needs to be regularly patched up in response to 21st century challenges.
Let us know your views
ICAS responds to many government and Office of Tax Simplification calls for evidence and consultations as well as producing tax policy papers and reports. We welcome Members’ views to inform our work – please email email@example.com to share your insights and feedback.