Tax Authority Advice and the Public

Stephen Daly

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509930555
• Edition: 1
• Topic: Droit
• Subtopic: Droit fiscal

There is now almost universal acceptance that tax law is overly complex and indeterminate; and yet, there has to date been no comprehensive assessment of the role of the tax authority in the current arrangement. If the legislation and case law offer few immediate answers to the taxpayer, then the role of Her Majesty's Revenue & Customs (HMRC) in advising taxpayers becomes more apparent. This monograph contends that the provision of advice by HMRC is desirable by virtue of the rule of law and it follows that any such advice should be correct, clear, accessible and reliable. Additionally, there should exist some means of scrutinising the advice in order to check that it satisfies these criteria. Tax Authority Advice and the Public explores this view of HMRC's role in tax collection. It explains the deficiencies in the current system in this light, highlighting the pitfalls for taxpayers and practitioners as well as the potential remedies. Finally, the book assesses potential reforms which could be adopted in order to alleviate existing problems. A timely and ambitious work, this book is essential reading for practitioners and academics interested in the interaction between tax administration and public law.

1

Introduction

But if taxation is the scourge of the twentieth century – the civilized evil as it were – we must learn to live with it.*

I.Introduction

There is now almost universal acceptance that tax law is overly complex and indeterminate. And yet, there has to date been no comprehensive assessment of the role of the tax authority in the current arrangement. If the legislation and case law offer few immediate answers to the taxpayer, then the role of HMRC in advising taxpayers becomes more apparent.

This book contends that the provision of advice by HMRC is desirable by virtue of the rule of law and it follows that any such advice should be correct, clear, accessible and reliable. Additionally, there should exist some means of scrutinising the advice in order to check that it satisfies these criteria. The book explains the deficiencies in the current system in light of this argument, highlighting the pitfalls for taxpayers and practitioners as well as the potential remedies. Finally, the book assesses potential reforms which could be adopted in order to alleviate existing problems. A timely and ambitious work, this book will be read by practitioners and academics interested in the interaction between tax administration and public law.

II.Background

Robert John Davies, Michael John James and Robert Gaines-Cooper claimed for tax purposes to be non-resident in the UK. Being wealthy individuals who had sought to base themselves outside the UK, the matter was of some significance. Before the Supreme Court in the 2011 case of Gaines-Cooper,¹ the trio sought to support their claim by relying upon guidance produced by HMRC, the UK tax authority. The argument was rejected by a majority of the Court. Beyond the merits of this particular decision, the case begs broader questions about the status of HMRC advice, its place within the legal structure, the means by which it is brought into being, and who ultimately controls it. The inquiry of this book takes its inspiration from these questions: it investigates HMRC advice, of which there are various types – from bespoke rulings to general advice in publications such as Extra-statutory Concessions, Manuals and Codes of Practice.

HMRC was formed in 2005 from a merger of the previous tax-collecting bodies, the Inland Revenue and Customs and Excise.² Broadly, the bodies were respectively tasked with collecting direct and indirect taxes, though HMRC also performs other functions such as the administration of tax credits³ and the collection of student loan repayments.⁴ Meanwhile, not all ‘taxes’⁵ are collected by HMRC; for example, council tax.⁶ The merger retained the non-ministerial status of the bodies,⁷ whereby ministers and the Treasury are kept at arm’s length from the everyday activities of HMRC.⁸ The closest that the UK has to a ‘Tax Minister’ is the Financial Secretary to the Treasury, to whom responsibility for oversight of HMRC has been delegated by the Chancellor of the Exchequer.⁹

HMRC’s primary duty is the collection and management of taxes and credits,¹⁰ which allows the body to do anything necessary or expedient in connection with the exercise of its functions, or incidental or conducive to their exercise.¹¹ This duty renders lawful the provision of advice by HMRC. As noted by Moses LJ in the Court of Appeal in Gaines-Cooper,¹² and affirmed by the Supreme Court,¹³ it is up to HMRC to determine how best to go about performing the duty.¹⁴ But the body has long acknowledged that the duty is best discharged by ‘encouraging co-operation between the revenue and the public’.¹⁵

HMRC’s power to provide advice is not unconstrained. It must be construed in light of fundamental constitutional principles and rules such as Parliamentary sovereignty and those found in the Bill of Rights Act 1688/9. Article 1 provides that the suspension of laws without consent of Parliament is illegal, whilst Article 4 proscribes the levying of taxes without Parliamentary approval. Parliament decides what taxes are due, not HMRC. Further, the duty must not be performed in a way which conflicts with primary law, such as in relation to the Human Rights Act 1998 or the European Communities Act 1972. Public law standards will also be implied into the power to provide advice. For instance, the power must not be used for an improper purpose.¹⁶ HMRC should take into account relevant considerations, and should disregard irrelevant considerations when providing advice.¹⁷ HMRC similarly should not act in a way that is irrational.¹⁸ But where it does something so outrageously misguided, then the body will be held to have acted unlawfully.¹⁹

Not only is HMRC legally empowered to provide advice, it is also desirable in principle by reason of the rule of law that the body should do so. Whilst there is no general consensus as to the precise meaning of the rule of law, it is an uncontroversial tenet that laws should act as guidance for individuals.²⁰ Though lacking formal legal consequences,²¹ public authority advice then nevertheless does seek to guide the actions of those to whom it is addressed.²²

It is contended in the book that a normative framework can be deduced from the rule of law, which can be tested against a system for the provision of advice. The framework consists of five benchmarks: correctness, clarity, accessibility, scrutiny and reliability. The first three relate to actual advice given by HMRC whilst the latter two relate to the structure in place for advice. These will overlap to a degree, but are sufficiently distinct so as to warrant their own individual consideration. But it will be pointed out in the book how these impact each other. When HMRC advice is placed in this framework, it is possible to investigate properly whether it satisfies these benchmarks in practice. It helps to pinpoint where deficiencies arise and allows solutions then to be proposed to remedy these issues.

The book seeks to set out the relevant law in this area in a systematic way, enriching the explanation with academic insight and providing considered reform suggestions. Whilst the book principally focuses on HMRC, it is not only to be read by those concerned with UK tax law. The book proposes a normative framework for the provision of advice which can be applied not just to HMRC, but tax authorities in other jurisdictions. Further, tax authorities are not the only public authorities which provide assistance to the public and the framework can be applied to those bodies also. Meanwhile, the book makes claims about the operation of UK public law, such as in respect of the doctrine of legitimate expectations, which should be of interest not just to UK public lawyers, but to common law public lawyers generally.

III.Justification for Study

This book is the first study which comprehensively looks at HMRC’s role in providing tax advice. But there are three questions which follow: why focus on HMRC advice? To what extent does the existing literature consider the provision of advice by HMRC? And finally, why now?

As to the first question, tax commentators have noted that tax legislation has become increasingly complex and indeterminate²³ and, in consequence, there is a considerable body of literature analysing alternative structures for the promulgation of law.²⁴ If these reforms were adopted, or in any event if those who enact the tax laws paid greater attention to the lawmaking process, then the need for HMRC to provide advice could be substantially reduced. A critic might suggest to that end that the study of HMRC advice is misconceived and that the proper focus should be on the process that ends with Parliament enacting tax laws. Indeed, the evidence that Parliament effectively scrutinises Finance Bills is largely absent.²⁵ But there is little reason to believe that Parliament will become an effective scrutinising agent in the foreseeable future.²⁶ Former Chancellor of the Exchequer Nigel Lawson once confessed that the Treasury could use the ‘arcane’ language of the Finance Bill, which bore ‘little resemblance to the English language’, to successfully evade Parliament’s gaze.²⁷ The limitations of the Houses are also underlined by cases like the GAAR legislation, which went to a standing committee, rather than Parliament, to be analysed in detail.²⁸ The choice to study HMRC advice rather than the failings in the underlying law is justified accordingly by the fact that it does play and will continue to play an important role. We must see the world as it is, not as we would wish it to be.

Therefore, even if changes were to occur in the way that tax legislation is created or to the substance of the statutes, there would still be a need for HMRC to advise taxpayers (and HMRC staff) as to the operation and application of the rules. There is a limit to the level of detail that can be contained in statutes or secondary legislation or even any mandate, given the limits of language.²⁹ Indeed, there comes a point where even HMRC advice cannot be made even more specific. Critically, though, between that point and the legislation there is plenty that HMRC can do to assist. Of course, the presence of HMRC advice may have an impact on the level of detail which is contained in legislative form, but the blame for this phenomenon lies with actors external to HMRC.³⁰ More relevant to the actions of HMRC is the fact that there will be a relationship between the advice that it issues to a general class of taxpayers as against that which is issued to individual taxpayers. The better the former, the less need for the latter, and vice versa.

In relation to the second question concerning literature in the field, there has been little focus on the provision of advice by HMRC. Of note, however, is a 2011 book chapter from Freedman and Vella wherein the authors discussed the contours of HMRC’s discretion and flagged up a number of issues, such as the difficulties encountered when seeking to rely upon HMRC advice.³¹ This book should be seen as building upon the foundations set by that chapter and providing answers to the questions posed by the authors. Similarly of note are previous publications recommending that the UK introduce a system for rulings.³² The book will also recommend introducing a system of rulings, but it will be far more comprehensive than that previously recommended, encompassing public rulings also, in addition to placing the idea of rulings more generally within the framework of HMRC advice. It is impossible to disaggregate the need for a system of individual rulings more broadly from the need for a comprehensive regime governing HMRC advice. Further, there has been work undertaken very recently on HMRC guidance by the Office of ...