POWERS OF THE BOARD OF INLAND REVENUE (Hansard, 12 July 1993)

§ Mr. Beith
I beg to move, That the clause be read a Second time.
The new clause seems rather technical and raises a wider issue. It seeks to ensure that the agents of Government charged with collecting taxes are doing so in a fair, even-handed and responsible way. It specifically seeks to guarantee that, when a tax inspector tries to obtain documents or information from a taxpayer or third party, he does so only with the appropriate judicial approval and that the board of the Inland Revenue does not give the impression of acting as judge, jury and executioner.
Section 20 of the Taxes Management Act 1970 deals with the powers of inspectors to demand the production of documents from a taxpayer and third parties. Under that section, an inspector who believes that he needs access to a document in the possession of the taxpayer or some third party, for example a bank, can get an authorisation to serve a notice for material in two ways: by seeking the approval of the board of Inland Revenue itself to serve the notice, or by asking for the approval of a special or general commissioner. That appeal, whether to the board or the commissioner, is heard in private. The taxpayer need never be told of anything said about his tax affairs and has no chance to put his case against the inspector. The commissioner is under no obligation to keep minutes of the hearing, so often it is impossible to verify what has been said.
There are circumstances in which a degree of secrecy may be necessary. A crooked taxpayer could take advantage of the advance warning of notice. That is all the 724 more reason why the process should be seen to be completely above board and should carry the most stringent checks on the correctness of its application.
There is a further reason why the process is of importance to certain innocent taxpayers. There is increasing evidence that section 20 actions are being used by banks as a reason to limit and even to withdraw credit or access to banking facilities. We all share the anxiety that, if some inquiry were made about us for no reason by a credit reference agency, it might panic our bank into not treating our account in the normal way. That inquiry becomes a real fear when it comes to light that there are cases where banks have ceased to operate an account in the normal way or have not allowed the taxpayer to do so when the section 20 notice comes to them. The bank might not even tell the taxpayer, the small business man or whoever why it is doing that, because it does not wish to alert him to the Inland Revenue's action and it would not be proper for it to do so. Suddenly the business man, who has already been adversely affected by his protracted arguments with the Revenue, finds that his bank is not operating in the normal way for no apparent reason. It is hard to imagine anything more likely to give someone a persecution complex.
In that context, it is not acceptable that the Inland Revenue should be able to act alone and without regard to outside control. The new clause removes the powers of the board to issue its own notices so that, in future, the only way in which an inspector could get a notice under section 20 would be to seek the approval of a commissioner acting in a judicial role or independently of the board.
It is not that tax inspectors are crooked or that they engage in anything other than proper tasks on our behalf, but occasionally there is an excess of zeal, as Ministers know from the cases in their constituencies, where power seems to have been used in circumstances that are not merited and which represent an unfair imposition on what turns out to be an innocent taxpayer.
It is equally important that the work of the Inland Revenue be seen to be carried out in a fashion that is transparently honest and fair to the taxpayer. That is part of the process of maintaining confidence in our system.
There is another aspect that has been brought to light, as so many things have been, by the Asil Nadir case. What a lifting of the stone that case was and how many things were found beneath it. One thing that curiously came to light was that tax officials had given details of Mr. Nadir's tax affairs to the stock exchange. Although few Opposition Members have any sympathy for Mr. Nadir, it raises the possibility for other taxpayers that there may be unauthorised disclosure by the Revenue of documents to somebody or some agency through which they might pass to a business competitor, to a potential creditor or to someone who in some way might, with no proper legal authority, use that information to the detriment of the taxpayer. The discovery that the Revenue is not above disclosing information in a way in which it is legally precluded from doing must add to the arguments for proper protection when the procedure is used to obtain documents.
There are reasonable ways in which that protection can be achieved by following certain procedures. First, hearings for the approval of an inspector's request for notice should have to be properly recorded and the taxpayer should be given a right to see what was said about him and his affairs at any later appeal.
725 Secondly, looking back to the House of Lords decision in 1991 in the case of T. C. Coombs and Co., to authorise a notice, the commissioner should be satisfied that, in all the circumstances, the inspector is justified. There is an implied duty on the inspector to divulge all relevant information, even if it does not support his case.
With that case in mind, we should ensure that both aspects are guaranteed. The first is guaranteed in section 20, but the second is not. There is no guarantee that the implied duty to divulge all relevant information will be exercised. If that were to be made a statutory requirement, and if the taxpayer were given the right to discover what had been said, it would be a reasonable safeguard.
Thirdly, we should ensure that when a commissioner hears a case for a notice under section 20, he should not be able to hear a future appeal relating to that taxpayer. It is not clear how often, if ever, that actually happens. The Minister may know how often the commissioner who hears an application for notice under the existing procedure turns out to be the commissioner who deals with that taxpayer's affairs at a later date. If a commissioner has already heard in private and without challenge many arguments of detail about that taxpayer's affairs, it may not be proper for him to be the person judging independently at a later stage that taxpayer's affairs. We believe that we should have such a safeguard. To what extent it is a safeguard observed in practice at the moment we do not know. The Financial Secretary may know the answer.
Those are the grounds on which we tabled the new clause. We believe that an important principle for the protection of taxpayers is involved even in the limited area in which, we all recognise, there may need to be the use of powers for the disclosure of documents so that fraud and evasion of taxes are not allowed to continue.

§ Mr. Dorrell
I of course agree with the right hon. Member for Berwick-upon-Tweed (Mr. Beith) that the question of the powers vested in the Inland Revenue to secure the proper collection of taxes is a proper concern of civil liberties and that we have to ensure that the balance between the powers of the Inland Revenue and the rights of the taxpayer is maintained. However, it is important to be clear about the circumstances in which an information notice can be served on a taxpayer.
The right hon. Gentleman is right to say that there are two routes by which an information notice can be served on a taxpayer. Either—this is the normal case—an inspector applies to the commissioners for an information notice and the commissioners grant it in the normal conduct of their duties—that is, on the commissioners' authority on the initiative of the inspector—or there is a power for the board to issue an information notice on its own authority without needing to go to the commissioners.
The right hon. Gentleman did not draw the attention of the House to the provisions in the Finance Act 1990 that limit the circumstances in which the board may legitimately use that discretion to circumstances in which the board can be satisfied that completion of the normal process—that is, applying to the commissioners—would lead to the danger that the right of the Revenue to collect 726 tax that is due would be prejudiced. I am sure that the right hon. Gentleman recognises that that is a legitimate concern and that the due process can on occasions lead to delay. Where there is a danger that the delay caused by due process would lead to a taxpayer avoiding tax that is legally due, it is reasonable for us to have a special process to avoid that happening.
The Inland Revenue has in place a code of practice which ensures that the power that is vested in the board of the Inland Revenue to issue information notices in such circumstances is delegated only to a very few senior officials. The inspector who seeks an information power has a choice between applying to the commissioners as an independent body or applying through the internal processes of the Revenue to one of the senior officials who has the power to issue the information notice only if he is satisfied that the conditions of the 1990 Act are satisfied, which is the key point.
That process achieves the objective that I set out at the beginning, which is that we need to maintain a proper balance between the right of the Inland Revenue to secure the information that it needs to collect tax that is properly due and the proper right of the taxpayer to insist that his interests are safeguarded. I shall consider the point that the right hon. Gentleman made about the ability to go back to examine records of decisions made by the commissioners and by senior officials at the Revenue in these circumstances. But I would not be in favour of the further legislative constraints which the right hon. Gentleman envisages because I am satisfied that the existing arrangements provide proper safeguards and maintain the balance that all in the House want to see.

§ Mr. Beith
I am grateful to the Financial Secretary for agreeing to look at some of my specific suggestions, some of which could be implemented without following a statutory route. His reply on the main point had the blandness that one associates with Revenue defences of its existing powers. I cannot imagine a situation in which an official of the Revenue conscientiously going about his duties would not believe implicitly that he should not fail to use the most expeditious power—in this case, the power to go to the board of the Inland Revenue rather than to a commissioner. He would believe implicitly that that power was being exercised to avoid loss to the Revenue of tax that it should properly collect—collection that might be prejudiced by any further delay. Inland Revenue officials go through life suffused with confidence that they are acting on that principle. It was some external check on the exercise of that power which I sought and which I still think desirable.

§ Mr. Dorrell
The right hon. Gentleman should take note of the fact that the senior officials of the Inland Revenue have been satisfied that the test is passed only in roughly 15 to 20 cases a year.

§ Mr. Beith
I am grateful to the Financial Secretary for that clarification, which is some reassurance. I hope that when he considers my detailed suggestions, he will bear in mind not only the point about unauthorised disclosure, which I hope causes people in the Inland Revenue to think again, but even more my point about the effect on banks and financial institutions of such notices. If the procedure is exercised at all, it could prejudice the conduct of the taxpayer's affairs and it might do so in circumstances in 727 which the taxpayer is wholly innocent. I hope that the Financial Secretary will bear that point in mind. I beg to ask leave to withdraw the motion.