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The Chartered Institute of Taxation (CIOT) welcomes the removal of the wording ‘HMRC thinks’ from the Finance Bill 2007.  The wording was to be used in relation to penalties.

In its response summary document to the Finance Bill 2007, the Institute said that it objected to the phrase ‘HMRC think that’ in clauses 1, 2 and 3 of the draft legislation, and similar phraseology in clauses 8 to 11, believing that it is  too wide-ranging a phrase.

In its response document, the CIOT said "Where penalties are concerned, the test should always be objective rather than subjective. We believe that in the proposed legislation the words ‘HMRC think that’ are superfluous. The words come from legislation where the inspector is exercising judgement. In the case of penalties, that is not the position. Either there has been an offence giving rise to a penalty or there has not. The penalty follows from what the taxpayer did and from nothing else. These words are not needed.”

The same point regarding use of this phrase has arisen in connection with the draft New Management Act. In view of HMRC’s intention to move towards ‘light touch interventions’ as a method of enquiring into and possibly assessing individuals, the CIOT is even more concerned about the possible impact of such vague terms. Such wording would open the possibility of HMRC not only assessing but also raising a penalty where they suspected that a return was incorrect on account of the results of a risk assessment output, as opposed to any hard evidence. The Institute strongly recommended that in each case the words ‘HMRC think that’ were removed.

On hearing the news that the Government has agreed to remove the wording, Rob Ellerby, CIOT President, said “The removal of the phrase ‘HMRC thinks’ will make the legislation work better, one of the main aims of the CIOT.”

Links

Finance Bill 2007: Comments of The Chartered Institute of Taxation