An unsuspecting taxpayer might assume that the Taxes Management Act 1970 (TMA) would tell them all they need to know about complying with their tax obligations – and HMRC’s powers to enforce that compliance. However, they would be disappointed.
What is wrong with TMA?
Since 1970 there have been major upheavals in the rules for assessing and collecting tax, including the introduction of self assessment and the wide-ranging changes arising from the review of HMRC powers, deterrents and safeguards between 2005 and 2012.
TMA has been extensively amended but there is also legislation scattered across numerous Finance Acts – not to mention various regulations. It can be difficult to track down the relevant provisions and to understand how they apply to specific circumstances.
Furthermore, the legislation is not written in a user-friendly style – TMA was not one of the tax statutes rewritten by the Tax Law Rewrite project between 1996 and 2010. The project tried to make tax legislation clearer and easier for taxpayers to understand by reordering the legislation, using modern language and shorter sentences, and providing consistent definitions and clearer signposting.
Apart from missing out on a rewrite, TMA has not kept up with technological developments and with new approaches to tax. The basic provisions relating to assessing tax were written long before anyone envisaged the widespread use of computers by HMRC and taxpayers. Similarly, they were not written with charges like the High Income Child Benefit Charge (HICBC) in mind.
Patching up a creaking TMA is on the way to becoming a regular feature of the annual Finance Act. It must be done to maintain HMRC’s ability to collect tax, but it does not solve the underlying problems or help taxpayers to comply.
The latest sticking plaster
The Finance Bill published on 4 November 2021 includes clauses to ‘put beyond doubt’ that HMRC may use discovery assessments to recover certain tax charges, including the HICBC. A recent Upper Tribunal decision cast doubt on HMRC’s ability to recover HICBC and certain other charges relating to gift aid and pension schemes. HMRC is appealing against the decision, but the Finance Bill ensures that, regardless of the outcome of the appeal, discovery assessments continue to be effective in these cases.
Going forward the Bill also provides that discovery assessments may be used to recover any income tax or capital gains tax that ought to have been assessed but has not been assessed, and that individuals who are chargeable to various specified income tax charges need to notify chargeability to HMRC.
We have been here before….
This is not the first time HMRC has faced a challenge to its approach – and the government has resorted to patching up TMA to ‘clarify’ the position. A patch applied by the Finance Act 2020 ensured that HMRC’s extensive use of computers to carry out routine tasks, such as giving statutory notices (for example, notices to file returns) and imposing penalties was, and always had been, in line with the law. Similarly, the Finance Act 2019 confirmed the effectiveness of HMRC’s practice of accepting voluntary income tax and corporation tax self assessment returns as valid returns
Modernising tax administration – and the Taxes Management Act
Last year the government published its 10-year strategy for creating a tax system ‘fit for the challenges and opportunities of the 21st century’. ICAS responded with a report setting out our top ten priorities for tax administration. One of our priorities is that TMA should be rewritten in the user-friendly style of the Tax Law Rewrite project, consolidated so that all the main provisions are in one place, and brought up to date for technological and other developments since 1970. A modern tax administration system cannot be based on the shaky foundations of a 20th century act which is no longer fit for purpose and needs to be regularly patched up in response to 21st century challenges.