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Experts call for more consistency across tax regimes as UK considers reform

Having a single set of rules across all taxes with certain variation could help make the UK’s tax administration system easier to navigate and less costly for taxpayers and advisers, legal experts have said.

In a response to the UK government’s recent consultation on how certain aspects of tax administration could be reformed, tax experts at Pinsent Masons suggested that setting out the powers across all taxes in a single piece of legislation, with appropriate cross-references from the specific tax regimes, could ensure consistency is maintained.

For example, the powers for overseeing national insurance contributions (NICs) could be brought within the scope of tax enquiry and assessment powers, not only for the purpose of alignment, but also because the fact patterns for income tax and NICs disputes are often the same.

“The need for concurrent but different methods of assessment and appeal is unnecessarily complex. It also results in discrepancy between the periods for which income tax and NICs can be recovered, because one is based on a tax year basis and the other on a strict time limit prescribed in the Limitation Act 1980, which is linked to monthly rather than annual accrual of NICs,” said Ian Robotham of Pinsent Masons.

He added that deadlines are less likely to be missed where there is a more uniform system. “This would benefit HMRC for raising assessments, but also taxpayers, for example in ensuring that opportunities to make claims or amendments are not missed,” he said.

One area of variation suggested is HMRC’s powers for value added tax (VAT) and other indirect taxes.

“The powers for VAT are well established and well understood and changing them would require significant consideration of the relative merits of any proposed new system against the disruption costs,” said Bryn Reynolds, also a tax expert at Pinsent Masons.

Issues for VAT generally cover multiple periods, according to Reynolds, so it would be important not to introduce four times the amount of administration due to the quarterly nature of most VAT returns.

There may be some elements of the direct tax system which could be introduced into the indirect tax regime, he said, for example, the option for a taxpayer to apply for a closure notice in order to bring an enquiry to an end and move on to the next stage of a dispute.

The consultation, which closed earlier this month, focuses on HMRC’s enquiry and assessment powers, penalties and safeguards. It is part of the government’s plan to simplify and modernise these aspects of the tax administration framework, in a bid to provide greater certainty and consistency, drive compliance and ensure taxpayer rights are protected.

On aligning penalties across tax regimes, Pinsent Masons’ tax experts commented that non-compliance of the same type should have common penalties applied consistently, unless there is a good reason to divert.

They also suggested that there is some kind of oversight across all HMRC departments with a view to penalties of a similar nature being applied consistently between taxes and departments, so that there is not a real or perceived difference in the application of penalties depending on whether a taxpayer is dealing with VAT, employer compliance or corporation tax compliance.

It is also recommended that all disputes, regarding both direct tax or indirect tax, should proceed on the same procedural basis after a formal decision is issued by HMRC, as this could help reduce complexity and the risk of missing a deadline for appeals.

Greater clarity is needed from HMRC on the impact of “additional information” being offered by the taxpayers after a formal decision has been issued. In general, once a formal decision is made, the taxpayer has the option to either appeal or order a statutory review of the decision within 30 days of the date on the decision letter or to provide additional information to the existing officer, who will reconsider the decision. The original officer will often agree to do so, but unless and until the officer confirms that they are willing to do that, the taxpayer doesn’t know whether the timeline for accepting a review or bringing an appeal has been suspended or not.

One possible solution, according to Reynolds, is to include an explicit provision setting out that when a decision is issued with an offer to provide additional information to the existing officer, who will reconsider the decision, the provision of the additional information within the 30-day deadline leads to automatic extension of the 30-day deadlines for appeal or review.

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