Several ICAEW members were surprised by the use of directions for implementing the Coronavirus Job Retention Scheme, and queried the status of HMRC’s powers in its development. Robert Maas explains how it all fits together.
HMRC is often described as a creature of statute. That means that it has no power to do anything unless there is legislation authorising it to do so. But that’s not wholly correct. It can obviously also do anything that we volunteer to let it do. There is nothing wrong in volunteering to let HMRC do things; we (including me) do it all the time, but... Actually, I’m not going there today. It’s a bit of a hobby horse of mine and I don’t want to get distracted from legislation.
Parliament does not actually enact all of the legislation that HMRC operates under, but it does authorise it all. It sometimes delegates the writing of the legislation to someone else but enacts the boundaries within which that other person can create legislation. In relation to tax, that someone else is normally the Treasury rather than HMRC.
There are two main types of delegated legislation, often called ‘secondary legislation’ and ‘tertiary legislation’. Before considering these, there is another important point that I need to highlight. All that HMRC (or its predecessors) did 20 years ago was administer the tax system. However, in the past 20 years it has taken on new roles. Today it seems to be the administrative arm of the Treasury. Whenever the Treasury needs something done, it calls on HMRC to do it.
HMRC’s functions
It is important to understand that HMRC carries out a number of different functions, and the powers that it has available in a particular case depend on which function it is exercising. Most of us are familiar with at least some of the powers that HMRC has under the Taxes Management Act 1970 and the Commissioners for Revenue and Customs Act 2005. These are powers that relate to its function in administering the tax system.
It cannot use those powers when carrying out its function as a money-laundering regulator or the deliverer of the government’s coronavirus payments. In carrying out those functions, it can only use the powers derived from the Proceeds of Crime Act 2002 (and subsequent related legislation) or the Coronavirus Act 2020 respectively, and delegated legislation made under those Acts.
For example, in many cases the Taxes Management Act and other taxing statutes give HMRC the power to extend time limits if there is a reasonable excuse for missing them. The Coronavirus Act does not contain a corresponding provision, which means that in exercising its Coronavirus Act functions, HMRC is bound by those time limits, even if there is a reasonable excuse or enforcing the limit seems to HMRC to be unfair. HMRC is bound by the statute that is appropriate to the function being carried out. It cannot use its broader tax powers in relation to a non-tax function.
Secondary legislation
Secondary legislation primarily refers to regulations or statutory instruments (SI). SI is a generic term that covers some things other than regulations, such as orders, although the distinction between the different types is largely historic. Primary legislation (an Act of Parliament) authorises the making of regulations.
For example, s684, Income Tax (Earnings and Pensions) Act 2003, requires HMRC to make regulations with respect to the assessment, charge, collection and recovery of income tax in respect of PAYE income. In reliance on s684, HMRC has made the Income Tax (Pay As You Earn Regulations) 2003.
In theory, Parliament approves (or is entitled to approve) regulations. Most regulations are subject to the negative resolution procedure. A draft of the regulation is laid before the House (ie, put on a desk in the Journal Office) for 40 days, and during that period any MP can object to it. A regulation has an explanatory note attached to it so that (in theory at least) MPs can understand what it is all about. If an objection is made, the SI will be reviewed by a Parliamentary Committee. In practice, any objection is rare.
Some are subject to an affirmative resolution procedure. That means that at the end of the 40-day period, Parliament has to vote to approve the SI. If a regulation-making power seems controversial, the government may volunteer to make it subject to the affirmative procedure to placate MPs.
SIs are used to flush out the details, or to allow time for HMRC to consult on the way it should operate, or to cover areas where regular changes may be needed so that these can be made outside the overburdened parliamentary timetable. Regulations, like Acts, are published on legislation.gov.uk, so are readily available.
Tertiary legislation
Tertiary legislation is normally sub-delegated legislation, but it can also refer to directly delegated legislation that is not required to be made by SI. Such legislation is less easy to find as it is not held in a central place.
The VAT legislation contains quite a lot of such provisions. For example, para 3(5), Sch 10, Value Added Tax Act 1994 says a company will cease to be a relevant associate of the other “if it meets conditions specified in a public notice”. Opting to tax land and buildings (VAT Notice 742A) sets out those conditions at 6.3.6 and 6.3.8. However, the remainder of paragraph 6 of the notice has no legal force whatsoever. It is simply HMRC guidance. HMRC points out in the notice which parts of it constitute legislation or, as HMRC puts it, “have the force of law”, but it does not specify in most cases where that force derives from. It is left to you to track that down.
So what about the coronavirus legislation? Section 76 of The Coronavirus Act 2020 is very brief. It says: “Her Majesty’s Revenue and Customs are to have such functions as the Treasury may direct in relation to coronavirus or coronavirus disease.” Section 75 gives a minister power to give selective financial assistance to industry but requires him to report to Parliament quarterly on what assistance has been given. Section 86 authorises a minister to incur expenditure by virtue of the Act.
In reliance on those provisions, the Treasury made several directions under s76 in relation both to the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme (SEISS). These directions are fairly brief. They specify the conditions that must be met to qualify for the relevant scheme and the duties of HMRC under that scheme. These directions contain the full scope of HMRC’s powers in relation to the relevant scheme.
For example, the SEISS direction of 30 April 2020 says: “This direction requires Her Majesty’s Revenue and Customs to be responsible for the payment and management of amounts to be paid under the scheme set out in the Schedule to this direction.” That is all that HMRC is empowered to do: to manage the scheme and make the payments that the scheme authorises. HMRC can do nothing in relation to SEISS that does not meet the requirements of that Schedule.
Does delegated legislation have a place in the functioning of the tax system?
The Tax Faculty does not like secondary and tertiary legislation. Tax SIs are formulated by HMRC and receive little parliamentary scrutiny. Tertiary legislation gets no parliamentary scrutiny and as a result often seems designed to make life easy for HMRC rather than for taxpayers.
However, in reality both provide important means to react to changing circumstances much faster than Parliament can. The problem is that too often they seem to be used to remove from Parliament the boring bits of the legislation, whereas it is those boring bits that are most likely to affect our interaction with HMRC.
About the author
Robert Maas is a Tax Consultant at Carter Backer Winter LLP