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Law change will confirm that HMRC decisions can be made by a computer

The law is to be changed to confirm that the use of large-scale automated processes to serve notices to file returns and to issue penalties by the UK tax authority HM Revenue & Customs (HMRC) is supported by legislation, the government has announced.

A technical note published on 31 October announced that legislation would be introduced in the next Finance Bill to make it clear that HMRC's use of large scale automated processes "is and always has been fully supported by legislation" and that it would have effect both retrospectively and prospectively.

The provisions affected include the giving of notice to file a tax return as well as the automatic issuing of penalties where returns are filed late.

In these cases the legislation provides that actions will be taken by an HMRC officer, but in practice HMRC uses automated processes to carry out the tasks rather than making individual decisions on individual cases. Taxpayers have challenged the use of automated processes and judges have cancelled penalties in some cases where HMRC has been unable to show that a specific HMRC officer considered the case individually and gave the notice.

In 2017, allowing an appeal against a penalty for not filing a corporation tax return, judge Richard Thomas said: "the requirement … is for a flesh and blood human being who is an officer of HMRC to make the assessment, that is to decide to impose the penalty and give instructions which may be executed by a computer".

Taxpayers who have received a settled judgement from a court or tribunal regarding the use of automation by HMRC before 31 October 2019 will not be subject to the retrospective application of the legislation, the government has said.

“The Government introduces legislation with retrospective effect only where necessary. In this case retrospective effect is necessary to close off the exchequer and operational risks presented by judicial challenges to HMRC’s ability to automate certain functions," said Jesse Norman, the financial secretary to the Treasury, in a written ministerial statement.

"It will protect very substantial sums of tax and penalties already legitimately paid. It will preserve the status quo for taxpayers and HMRC, merely confirming the validity of HMRC’s longstanding and widely accepted operational practice. Taking this action will help to guarantee the integrity of the tax base, provide certainty to taxpayers, and allow the Government to continue to administer the tax system efficiently," he said.

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