Chancellor Philip Hammond is being urged against extending the window in which HMRC can investigate taxpayers’ affairs if they had some tax dealings outside the UK.

A group of peers have called the move “unnecessary and undesirable,” and indicative of a system where the balance of powers has started to tip in HMRC’s favour.

The Finance Bill Sub-Committee will review the draft Finance Bill 2018. Its scrutiny will centre on two themes: Making Tax Digital for VAT, and the powers of HMRC.

Widespread opposition

In a letter to Hammond, Lord Michael Forsyth, chair of the committee, set out some interim recommendations on the legislation. He wrote that there is widespread opposition to the government’s proposed extension to the time limit for investigating offshore tax non-compliance.

The measure will come into effect in April 2019 under the Finance Bill to crack down on tax evasion. However, the committee said it was unclear how HMRC had arrived at the proposed 12-year limit for looking into taxpayers’ affairs if they had some tax dealings outside the UK. It is treble the normal time limit for assessments, assuming the person is not suspected of deliberately committing fraud.

A right to certainty

Committee members said the extension would be “unreasonably onerous and disproportionate to the risk.” It would ask taxpayers with offshore activities to wait for a lengthy period before they could achieve certainty and settle matters finally. They would also have to retain many years-worth of records to deal with any questions HMRC may raise.

“Honest taxpayers have a fundamental right to certainty and closure after a reasonable time,” Forsyth wrote.

He recommended that the government withdraw it from the Finance Bill. He further recommended that they start a fresh consultation to consider how offshore tax matters can be managed more effectively.

Substantial evidence of abuse of powers

The letter added that the sub-committee would investigate the “substantial evidence [it] received alleging abuse and inappropriate use of HMRC powers.”

The committee will publish two reports on the new Finance Bill detailing its findings and recommendations before Christmas.

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