Call for evidence: HMRC’s enquiry and assessment powers

Background

A Previous call for evidence identified support for simplifying the tax administration framework; the policies, legislation, and guidance that underpins HMRC’s ability to administer taxes and duties effectively.

Building on that, HMRC have published a further call for evidence focusing on enquiry and assessment powers, penalties, and safeguards.

The government believes there is potential for simplification and modernisation in these areas which will result in greater certainty and consistency, strengthening compliance and increasing trust in the tax system.

Enquiry and assessment powers

HMRC have a number of enquiry and assessment powers to check and correct the accuracy of information provided by taxpayers. 

These enquiry and assessment powers vary. For most direct taxes, HMRC may check returns or claims via an enquiry, whereas, for indirect taxes, HMRC address non-compliance by raising assessments within certain time limits. Assessments may also be used where an enquiry window has passed.

A total of six reformation opportunities are identified in this area. These include:

• Replacing current enquiry and assessment powers with a single set of powers, applying across all taxes.
• Aligning HMRC’s powers across all regimes and addressing gaps such as those which lead to HMRC opening protective enquiries.
• Suspending time limits for consequential amendments, to enable the tax consequences of non-compliance to be corrected across all affected periods and tax regimes.
• Adopting a simpler, strict time limit approach for assessments, rather than conditions which relate to HMRC’s knowledge of the facts.

Penalties

Where taxpayers do not meet their obligations under the tax system, they may be charged penalties. Penalties seek to encourage compliance and punish non-compliance.

Ten possible opportunities for reform are considered by the call for evidence, including: 

• Aligning penalties across tax regimes, for example, for Late submission, Late payment, and Inaccuracy.
• Simplifying penalties, for example by calculating inaccuracy penalties without a Behavioural element, focusing only on cooperation and past compliance.
• Reforming the use of penalty suspension, for example by applying suspension automatically without conditions for the first non-deliberate or careless failure, subject to a 4-year good compliance period.
• Establishing proportional fixed penalties that rise with income, resources, or tax liability.
• Introducing escalating penalties for continued or repeated non-compliance.

Safeguards

Safeguards protect the interests of taxpayers by ensuring they are treated fairly and in accordance with the law. Potential reform considered by the call for evidence covers six areas. These include:

• Aligning how appeals are made between direct and indirect taxes, and aligning payment requirements. 
• Improving access to Alternative Dispute Resolution and Statutory reviews, for example, by recommending taxpayers pursue these routes before an appeal to a tribunal.
• Mandating statutory reviews in certain cases, such as for late filing penalties, or where the tax in dispute is under £10,000.
• Withdrawing the option of statutory reviews such as where there are no reasonable grounds for appeal or where the dispute involves an avoidance arrangement.
• Introducing alternative channels to lodge and manage appeals, for example, digitally.

The call for evidence closes on 9 May 2024. Responses may be sent by e-mail, to This email address is being protected from spambots. You need JavaScript enabled to view it..

Useful guides on this topic

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

Penalties: Errors in Returns and Documents (subscriber version)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty? 

Statutory Review (by HMRC)
What is a Statutory Review? When does HMRC offer a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? When does HMRC offer a Statutory Review?

How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?

External link

HMRC call for evidence: The Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards

Call for evidence questions 

Enquiry and assessment powers

Question 1: What are the potential opportunities, benefits, and risks of moving to a single set of powers across all taxes?

Question 2: What are the potential opportunities, benefits, and risks of moving to a model that gives greater consistency and alignment to the key assessment and enquiry provisions?

Question 3: What are your views on any potential costs of changes to assessment and enquiry powers?

Question 4: Are there any circumstances or taxes where specific enquiry and assessment powers may be necessary?

Question 5: What would be the impact of greater alignment in the examples mentioned?

Question 6: Are there other potential gaps or mismatches that you think it would be beneficial to address?

Question 7: What are the merits and risks of HMRC introducing a consequential amendment power across periods and tax regimes?

Question 8: What are your views on the opportunities and merits of reform in this area?

Question 9: What are the challenges relating to claims for relief and credits? How should reform to enquiry and assessment powers for reliefs and credits be approached?

Question 10: Are there specific issues relating to compliance activity that need to be considered as HMRC moves to greater use of digital communications?   

Penalties

Question 11: Which types of non-compliance do you think should have common penalties applied consistently across HMRC’s tax regimes?

Question 12: Are there tax regimes where a differentiated approach to certain penalties may be needed?

Question 13: Are there particular penalty regimes you think should be simplified? We would welcome views on why and how such penalty regimes might be reformed.

Question 14: What are the potential benefits and challenges of moving away from the current set of behavioural penalties? What alternative models should be explored?

Question 15: What alternatives to the current model of penalty suspension do you think should be explored?

Question 16: What merits and challenges would making fixed penalties more proportional to a taxpayer’s income, resources, or tax liability present? Are there other models that should be considered?

Question 17: Do you agree that penalty escalation could help to address instances of continued and repeated non-compliance? What challenges could this present?

Question 18: Are there particular models of penalty escalation you think should be considered, and why?

Question 19: Are there specific behaviours and situations that you think penalties could help to address, and why?

Question 20: Where could HMRC communicate in a more timely or effective manner with taxpayers about penalties?

Question 21: Would you support the regular uprating of fixed penalties for inflation? What challenges would this present for you?

Safeguards

Question 22: What are the merits and challenges of aligning the appeals process with either the direct or indirect taxes approach?

Question 23: Are there other examples of appeals processes for direct and indirect taxes that could be considered as an alternative approach and why?

Question 24: What are the merits of aligning payment requirements across regimes where a liability is disputed, and a tribunal appeal is made?

Question 25: Are there specific circumstances where you think the existing differences across regimes are important or desirable to maintain?

Question 26: How can HMRC improve access to statutory reviews and ADR? Are there ways to encourage voluntary take-up of these you think we should explore and why?

Question 27: What are the merits and challenges of increasing take-up of statutory reviews and ADR with a ‘recommendation and opt out’ approach?

Question 28: What are your views on the possibility of mandating statutory reviews in certain circumstances?

Question 29: Are there specific circumstances where you think it would be appropriate or inappropriate to mandate statutory reviews?

Question 30: Would you have any concerns if HMRC were to withdraw the option of statutory review in some cases?

Question 31: Are there other areas you think would benefit from alternative appeals channels (for example, digital)?