HC Deb 22 June 1965 vol 714 cc1453-5
19. Mr. Shepherd

asked the Chancellor of the Exchequer why, when an inquiry is made into the Income Tax affairs of a taxpayer and nothing is found to be out of order, the taxpayer is called upon to pay the costs of the inquiry.

Mr. MacDermot

The Inland Revenue neither claims nor reimburses expenses relating to inquiries. I do not think that such expenses should be treated differently from other expenses connected with tax affairs.

Mr. Shepherd

Is it not an offence against the sense of natural justice that, when an inquiry is forced upon a taxpayer and no cause for complaint is found, he should be charged with the expenses? Ought they not to be borne by the Department?

Mr. MacDermot

It does not always follow, if an inquiry proves abortive, that the Revenue was not justified in taking it up. But the real point involved here is that, if the taxpayer is to claim where the inquiries prove abortive, the corollary of that, presumably, is that the Revenue should claim where they prove to have been justified. I think that it is better to follow the example laid down in our law in regard to proceedings before the Income Tax Commissioners who have no power to award costs. This question was considered by the Royal Commission, which recommended against any award of costs being made.

Mr. Shepherd

Is it not clear that if the Inland Revenue has to bear no part of the cost whether the inquiry is abortive or not, it will he inclined to institute an order and enforce inquiries where there is only a marginal case to answer? Is it not desirable that the Inland Revenue should recover its costs where it is proved to be correct and should fail to charge people where they are found to be blameless?

Mr. MacDermot

It is not right to say that the Inland Revenue bears no part of the costs. It bears its own costs. It has far too much to do to enter lightheartedly upon frivolous investigations.

Mr. Shinwell

Will my hon. and learned Friend look into the matter again? After all, if the Inland Revenue discovers that it has made a justifiable claim, the Exchequer receives additional revenue. So what has it to complain about? On the other hand, if the inquiry is abortive and it is demonstrated that the person concerned has not been guilty in any way, why should he be mulcted of costs?

Mr. MacDermot

When the Inland Revenue receives revenue, it does not receive any additional sum related to the costs of the inquiry which may have been rendered necessary. But if my right hon. Friend or the hon. Member for Cheadle (Mr. Shepherd) have specific cases that they would like to bring to my attention for me to look into, I should be glad to do so. I have stated the principle. I cannot see any justification for changing it, but should be glad to reconsider the matter in the light of particular cases.

Sir Robert Cary

If it be true that the investigation should never have been undertaken, is it not only fair to the individual citizen that he should be released from any costs?

Mr. MacDermot

The point that I made originally was precisely that—which I think anyone familiar with legal matters would certainly agree with—the fact that an investigation does not result in a claim for tax does not mean that it was not rightly undertaken.

Mr. William Clark

Would not the hon. and learned Gentleman go halfway in the matter? Under Schedule D, if there is an inquiry the cost of it to the taxpayer can be set against profits. This is not the case with Schedule E. Would the hon. and learned Gentleman look at it in this sense and go halfway and allow the costs of an inquiry to be set off against the Schedule E assessment?

Mr. MacDermot

I should certainly like to look into that.