New powers that would allow the UK tax authority to force financial institutions to provide information about people’s assets without court approval are “flawed” and part of a trend of removing taxpayer protections, members of the House of Lords have said.
In a report released on Saturday, the Lords economics affairs committee strongly criticised a proposal contained in the draft finance bill, which would become law if approved by parliament next year.
The measure would require banks, investment advisers, fund managers, credit unions, insurance companies and credit card issuers to divulge information about their customers if served with a “financial institution notice” by HM Revenue & Customs. The information would be used by the authority for checking an individual’s assets for tax purposes or the collection of tax debts.
Currently, HMRC can only ask a third party to provide information about an individual’s financial affairs if the person agrees or the tax tribunal approves the request.
“[The committee] is very concerned about the removal of taxpayer safeguards for information requests, particularly the need to request permission from the tax tribunal,” the report said. “These proposals are flawed and not supported by evidence.”
The government said the change is needed to make it quicker and easier for HMRC to share information with foreign tax authorities. But HMRC revealed to the committee that in the 2019-20 tax year, it requested only 49 international third party information notices out of 426 such applications.
The report did not say how many of the applications were approved.
“The overwhelming majority of cases which go to the tax tribunal are domestic. It is disproportionate to deny UK taxpayers the tribunal safeguard for the sake of speeding up a small minority of cases involving international requests,” the committee said.
The peers also criticised the proposal as being part of a “pattern of new HMRC powers being disproportionate, poorly targeted and without sufficient safeguards”.
In the past decade, HMRC has been given a range of powers to help it fight tax avoidance and evasion. However, the committee has previously said the balance has swung too far in HMRC’s favour at taxpayers’ expense. The increase in powers had also not led to HMRC defeating a “hard core” group of 20-30 developers of tax avoidance schemes, the report added, although it welcomed HMRC’s efforts to pursue the problem further.
“We are troubled that these types of scheme continue to proliferate, and that many of those people unwittingly caught in these schemes are on lower incomes,” it said.
A government spokesperson said HMRC was increasingly focusing its resources on tackling avoidance scheme developers and that over the past five years many had left the market.
“Our amendments to civil information powers contain numerous safeguards for taxpayers,” the spokesperson added.
“We consulted widely on these proposals as we do on all changes in tax policy and HMRC powers, using a range of evidence and consultative approach to ensure policies are soundly based and thoroughly tested.
“We keep HMRC’s powers under constant review to ensure it is able to effectively and proportionately combat those who do not comply with their tax obligations.”