In a range of new measure to crack down on tax evasion, HMRC has proposed it should have secret access to taxpayer’s bank accounts. David Redern, Director of DSR Tax Claims, denounces this proposal as an unreasonable invasion of taxpayers' privacy and urges HMRC to reconsider.
Last month saw the publication of an innocuous-sounding consultation document by HMRC entitled “Amending HMRC’s Civil Information Powers”. This document was distributed for comment and consultation before HMRC hopes it will become law. However, the unremarkable title of the consultation document hides the actual proposal contained within – that Her Majesty’s Revenue and Customs is seeking the power to access taxpayer bank accounts in secret, without the prior knowledge of the taxpayer. I’m sure that we at DSR Tax Claims are not the only people to be alarmed at the erosion of civil liberties and erosion of privacy that will follow, should this proposal be accepted.
How the law currently stands
Currently, if HMRC is investigating a taxpayer, it can issue the taxpayer with a notice to provide any information or documentation relevant to HMRC’s case. Once this ‘taxpayer notice’ has been issued, the taxpayer has a set period of time, which is usually 30 days, to respond to this notice with the information or documentation requested. In certain instances, HMRC may ask for approval from the tribunal prior to issuing the taxpayer notice – under these circumstances, the taxpayer then has no right to appeal the notice.
If the required information or documentation is in the possession of a third-party, such as a bank or financial institution, HMRC must gain the taxpayer’s agreement to request that the third-party provides the necessary information. The taxpayer must be given written explanation of the reasons why HMRC is going to request that the bank (or other third-party) provides the information. Should HMRC believe that this written explanation is going to prejudice the case or somehow hinder the collection of tax owed, it can apply to the tribunal for the ability to do this without prior agreement from the taxpayer in question.
What the proposal suggests
HMRC is proposing that third-party notices be aligned with taxpayer notices, so that the need to obtain approval from the tribunal for third-party notices would be removed. The reasoning behind this, according to HMRC, is that obtaining tribunal approval is time-consuming during the information gathering process, ultimately prolonging the time that an enquiry takes. That is certainly a valid viewpoint - that this extra layer of tribunal approval adds both time and cost to the relevant enquiry and it is not an unreasonable view that this be streamlined.
Under the proposal, the third-party would still have the right to appeal a request on the grounds that it is too onerous a request.
However, HMRC’s proposal goes one step further. The proposal explicitly proposes that there be an obligation on the third-party not to inform the taxpayer that HMRC has requested financial information relating to the taxpayer. As it currently stands, although HMRC can ask the tribunal to be allowed not to provide the taxpayer with prior information relating to the third-party notice, there is nothing to stop the third-party informing the taxpayer directly.
Why is this proposal problematic?
We would all agree (however grudgingly at times) that HMRC has the right to ensure that all taxpayers pay their correct share of the UK’s tax revenue and HMRC should do whatever it can to stamp out tax evasion – after all, we are all collectively responsible for paying our taxes and those who evade their lawful taxes push the tax burden on to those who are responsible. Although most of us dislike a letter from the taxman, it is right and proper that HMRC are able to collect the tax that they are owed.
However, most of us would have a problem with HMRC delving around in our bank accounts without our knowledge. Not only is it an invasion of privacy, there are also serious questions to be asked about the information gathered in this way and what HMRC may do with it. That HMRC may make decisions about your investigation or enquiry using information gathered without your knowledge or consent is particularly worrying. A vocal minority might suggest that those who have nothing to hide have nothing to worry about, but there are several reasons why a snapshot of your finances taken without explanation from you might not give a true picture of your financial and tax position. For example, it isn’t illegal for someone without their own bank account to have their wages paid into someone else’s account.
It is also a creeping erosion of taxpayers’ civil liberties with regard to control over their finances and financial information. From April next year, HMRC will have the right to deduct extra tax immediately from taxpayers’ salaries if they believe there is an underpayment of tax rather than waiting until the end of the tax year to balance accounts, meaning that you could find yourself with considerably less in your bank account than expected. For those with precarious finances, this could make budgeting a harder task than it already is.
HMRC’s need to reduce tax evasion needs to be balanced against the right of taxpayers to have control over their own financial information. Those who wish to comment on this proposal have until the 2 October 2018 to make their feelings known.