Budget 2009 Report - Tax Regulation

From the perspective of Tax Regulation there were several items of significance in Budget 2009, some of which were new, whilst others built on matters first heralded in the November 2008 Pre-Budget Report.

What was the worst job you ever had?

The first is of major significance for all Large Corporates - namely the proposal to make Senior Accounting officers of Large Corporates personally accountable for accurate tax reporting.

Large Companies will be required to notify to HMRC the identity of a "senior accounting officer", who must in turn monitor and certify annually that the accounting systems in operation are adequate for the purposes of tax reporting, or specify any inadequacies that exist. The obligations are enforced (the Budget Note uses the phrase "supported") by penalties chargeable personally on the senior officer as well as the company for a careless or deliberate failure to meet the obligations, or for carelessly or deliberately providing an incorrect certificate.

The purpose of this is obvious - to ensure that tax reporting systems (e.g. around entertaining expenditure) are fit for purpose. This will include ensuring that they are properly policed and resourced and that corners are not being cut in the context of a tough economic climate.

However, following on from the power to impose penalties on company officers for "deliberate" errors in respect of direct tax accounting, this represents a yet more "personal touch" (in a somewhat menacing sense) for company officers. In practice it is likely to lead to a lot more expenditure on "administrative burdens" because, whatever HMRC might say, company officers will doubtless want clear sign-off from their accounting or tax advisory firms that the systems in question are in order before providing the necessary certification to HMRC. Good news for those firms. Less so for UK PLC.

"New" Disclosure Opportunity

As announced in the Pre-Budget Report, a second "Offshore Disclosure Facility" - with a slightly different name - has been confirmed and it has been announced that it will run from the autumn of 2009 until March 2010. The detail is not yet published but will be eagerly awaited - in particular to see whether the "carrot" is a 10 per cent fixed penalty as with the previous facility, or whether it will be increased so as to preserve the advantage of those who came forward first time round. Everyone except senior HMRC Officers seems to accept that "ODF1" was not a resounding success, notwithstanding that it brought forward 65,000 disclosures. It is hoped that the "NDO" will be better publicised and that the "downside" of not coming forward will be made clearer - namely more prosecutions.

We Know Where You Live!

An associated announcement is the previously "leaked" proposal to "name and shame" individuals and companies who are penalised for deliberate defaults leading to a loss of tax of more than £25,000.

The concern here is the circumstances in which this will apply. Self-evidently tax evasion should be actively discouraged and its perpetrators should not expect an "easy ride". But there should also be clear advantages for tax evaders who choose to come forward and make full disclosure.

The proposal appears to acknowledge this in that it states that there will be "exemption from publication" for those who "make a full unprompted disclosure to HMRC of their defaults" (the statutory definition of which in FA 2007, Sch 24 can be construed very narrowly) or who "make a full prompted disclosure to HMRC within the required time" - and states that the required time is to be "specified by HMRC" - presumably on a case by case basis. 

It is to be hoped that there will be sufficient safeguards here to ensure that this provision is not abused (e.g. through unrealistic time limits being set in complex cases) since it provides a wide measure of discretion to HMRC to allow publication.  It will also be interesting to see how this will dovetail with the NDO – will people using the NDO facility automatically qualify for exemption from publication?

Again - and despite our comments above about the need for a "stick" - one does wonder if it is wholly appropriate to publish the addresses of people as well as their names and identifying details. The ugly scenes in the City of London and elsewhere in recent weeks are not to be encouraged any more than is tax evasion and, as a general comment, would it not be cleaner just to deal with people who evade tax on a serial basis in accordance with the law of the land - namely by prosecuting them and investing sufficient resources in doing so properly? This would be as an alternative to publishing a "sinners list" which could potentially give rise to "vigilante-ism" - and possibly giving some of those on the list a perverse sense of satisfaction.

Historic Tax Claims

From 1 April 2010, taxpayers will no longer be able to bring High Court claims to recover overpaid IT, CGT and CT as the statutes governing these taxes will be amended to provide an "exclusive" regime governing repayment of these taxes in all cases, limiting claims to four years.  Although these rules will apply retrospectively, HMRC has learned from previous mistakes by giving adequate notice to try to ensure that they do not breach EU law when they come into force.  Taxpayers should look at their current position in order to determine whether they have valuable High Court claims which should be made in the next 11 months. 

High Court claims have an advantage in having a longer limitation window than four years and in carrying an automatic entitlement to full interest on a compound basis.  HMRC is pushing ahead with the harmonisation of interest on overpayments and repayments of all taxes.  This will be based on the "differential" principle that HMRC acts as lender when a taxpayer underpays and deposit-taker when a taxpayer overpays, and thus that the rate of interest payable to taxpayers should be lower in order to avoid providing an incentive for taxpayers to overpay taxes and reclaim the money later on.  This is expected to disregard the fact that many overpayments are caused by official error or unlawful legislation and the taxpayer does not plan to overpay; it would be an easy fix to provide for a full rate of interest limited in application to such circumstances.

Claimants seeking compound interest in VAT cases will be relieved to see that the rumour that spread like wild fire over the last few days did not come to pass - there has been no attempt to close any perceived loopholes which allow compound interest on old VAT claims. 

A Charter for All?