Autumn Statement 2023 and Tax investigations

This article was first published in Taxation Magazine on 3 January 2024.

At first glance, there was little in the Autumn Statement that directly affects Tax Investigations and dispute resolution. HMRC has not been issued with any new powers and measures such as the proposal to double the maximum jail sentence for tax fraud had already been mentioned in the Spring Budget 2023. Aside from sanctions against promoters of tax avoidance schemes, there are only a few areas which could impact civil tax investigations going forward.

Here we review the new Data Collection legislation. Whilst not of direct relevance to tax investigations, the data provided could play a significant part in identifying high risk returns and how a future enquiry is managed.

Data Collection
This measure was announced earlier in the year and will require certain taxpayers to provide additional information to HMRC when filing a tax return. The reason given in the press release on budget day was “to enable better outcomes for citizens and businesses”, though it wasn’t clear what these improved outcomes are.

Taxpayers affected are employers, company directors, and the self-employed.
The press release stated that there will be “further technical consultation” and that “regulations will be laid spring 2024, with changes taking effect from the tax year 2025 to 2026.” The timelines are very tight, indicating perhaps that the further technical consultation may be more of a formality than a real consideration of how the regulations should be prepared.

Draft legislation states that:
“Where a person is required to make and deliver a [personal tax] return, the person may be required by an officer of His Majesty’s Revenue and Customs to include in the return any information that is specified or described in regulations made by the Commissioners (whether or not the information is relevant for [the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment].”

As drafted, the regulations are limited to require information relevant to income tax, corporation tax and capital gains tax.

Failure to comply with the requirement to provide the specified additional information will result in a penalty of £60. The same requirements apply to trustee returns and partnership returns.

Company directors will be required to detail the percentage of dividends received from owner managed companies separately to other dividend income. It is unclear how this will improve the accuracy of a tax return. What it seems more likely to do is show HMRC and HM Treasury how much tax may be gained by changing legislation around certain types of income and targeting specific taxpayers.

Employers will also be required to provide information on the amount of hours paid per employee. This will require PAYE software to be updated and for employers that do not retain timesheets, new company-wide protocols will need to be implemented.

The additional information requirement is likely to increase compliance costs without a corresponding benefit to the accuracy. Advisers may want to review additional information provided to identify potential risks before submission.

For the provision of information requirement to become law, the Commissioners simply have to prepare appropriate regulations; there is no parliamentary or other higher oversight. This leaves the additional information to be provided entirely at HMRC’s discretion regardless of whether that information is needed for the calculation of a person’s tax liability. The lack of oversight flies in the face of all other legislation under which HMRC may request information (e.g. Sch 36, Finance Act 2008).

The information requirement could include (e.g.) details of financial structures. It is unlikely that an HMRC Officer will review every tax return to determine whether the tax has been correctly calculated based on the additional information. Rather, if a certain tax structure is widespread, this allows HMRC to suggest tax reform which would impact both tax liabilities and specific groups of taxpayers. Realistically, given HMRC’s remit, any use of such data is likely to result in reforms that increase the tax liability.

Further, the information may be used as a factor in HMRC’s risk assessment armoury for determining whether a tax return should be enquired into. There will also be interaction with the discovery rules for raising assessments so the quality of information provided should be considered carefully particularly if the information requested is of a general nature.

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