Taxman wants 'draconian' new powers

Tax inspectors should be able to take fingerprints, search premises and people without police and have powers of arrest “across all taxes” - for those they suspect of defrauding the Exchequer.

Such is the range of new powers HM Revenue & Customs is considering in a consultation document, which advisors say goes too far by seeking police-style powers for its officials.

Yet the Revenue claims its current powers for probing “tax crime” are “cumbersome,” and “consistency” could be achieved if they were beefed up to match those available to Customs & Excise.

Giving tax inspectors the right to fingerprint, charge and bail suspects, as well as allowing them to search people on premises, not just the suspect, will save time and money, HMRC has stated.

It also said “complications” could be cleared up in terms of its powers of arrest, and suggests they should be granted to tax investigators “across all taxes” rather just five specific ones.

“One solution would be for HMRC to have consistent powers of arrest that apply to both ex-HMCE and ex-Revenue matters,” the consultation paper adds.

Under the proposals, tax inspectors could also target a business without needing to prove they suspect any “serious” criminal activity, leading to instant search warrants and production orders.

Under such a system, the Revenue wants to make it a criminal offence to destroy, conceal, tamper or dispose any documents that are the subject of the production order.

Equipping tax investigators with powers commonplace to their counterparts at Customs & Excise will be “clearer for taxpayers under investigation and will increase the effectiveness of HMRC’s investigations,” the tax authority said.

But leading accountants yesterday said the government has only just set up a new organisation – the Serious Organised Crime Agency –to investigate serious crime.

Therefore, they said, “it is unclear why similar powers to investigate crime [are] being considered for HM Revenue & Customs as well,” wrote the ICAEW’S Tax Faculty.

The Faculty added that while it appreciates HMCE expertise may be needed to investigate tax-related crime, “this is not an argument for HMRC to have police powers themselves.”

In a statement responding to the plans, the Faculty said: "HMRC may have dealt with organised crime in the past but this is no reason for them to continue to do so, given that for other serious crimes the State believes that SOCA should take over police investigations.

“The experience of HM Customs & Excise in serious fraud cases in recent years leads us to the conclusion that serious crime needs to be dealt with by those experienced in dealing with it, and that should be SOCA.”

John Cassidy, tax investigations partner at PKF, says any review intending to modernise the taxman should take legal steps to ensure its powers matches the seriousness of the crime.

”This proportionate approach should be enshrined in law, not left to the discretion of overstretched and, possibly, overzealous tax investigators seeking a quick win against suspected tax fraudsters.

"However, as originally suspected, HMRC is trying to take this opportunity to 'level up' the powers of its officers so these proposals would see a substantial increase in HMRC's powers in dealing with the individual taxpayer,” he said.

"No one objects to HMRC becoming more efficient but giving it draconian powers to investigate taxpayers carries significant risks.”

He added that the consultation fails to distinguish between powers used to investigate a sole trader and powers that would used to tackle a known team of organised tax fraudsters.

It was regretful, he hinted, that even the Revenue’s “seriousness” test to determine tax investigations may be scrapped.

"HMRC claims it will use the new powers proportionately but our experience suggests its officers often take an unnecessarily heavy-handed approach with some taxpayers who are eventually proven to be innocent. It would not need such sweeping powers if parts of the tax system, such as Tax Credits, were better designed in the first place."

The firm also accused the taxman of wanting to “pick and choose” the powers it can use from the Police and Criminal Evidence Act, rather just following PACE, as it was introduced in 1984.

“For example, it[HMRC] wants to retain its existing power to search any person on the premises it is raiding without having an arrest warrant for that person,” it said, “– this exceeds the powers available under PACE.”

Under the consultation, which affected parties can respond to until November 1, HMRC wants to extend the spirit of the Act to Scotland, where it currently fails to apply.


17th August 2006

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