Friday, October 29, 2010



Over the last few years HMRC have been reviewing their Extra-Statutory Concessions (ESCs) with a view to either withdrawing the concession or recommending the government to enact it. ESCs are published concessions under which HMRC state that they will not enforce the precise wording of a particular legal provision in specific circumstances. These concessions were introduced under the old Inland Revenue’s power of “care and management” of the tax system. I remember being told by the Revenue many years ago that they aimed to create fairness in areas where it would be too difficult to phrase the scope of the concession in statutory language.

HMRC have been advising the government to enact those ESCs that they feel it right to keep because of something said by Lord Hoffman in 2005 in the case of Regina (on the application of Wilkinson) v CIR. Lord Hoffman said that the Revenue’s power of care and management gives them a wide managerial discretion which enables them “to formulate policy in the interstices of the tax legislation, dealing pragmatically with minor or transitory anomalies, cases of hardship at the margins or cases in which a statutory rule is difficult to formulate or its enactment would take up a disproportionate amount of Parliamentary time”. Counsel for Mr Wilkinson claimed that some of HMRC’s published concessions went beyond mere management of the efficient collection of the revenue. Lord Hoffman’s response was, “I express no view on whether she is right about this, but if she is, it means that the Commissioners may have exceeded their powers under section 1 of TMA. It does not justify construing the power so widely as to enable the Commissioners to concede, by extra-statutory concession, an allowance which Parliament could have granted but did not grant, and on grounds not of pragmatism in the collection of tax but of general equity between men and women”.

As Lord Hoffman specifically stated that the Revenue did have power to make concessions in the circumstances set out earlier, it is highly questionable whether the judgement required HMRC to dispense with existing ESCs and to forbear from creating new ones. The HMRC response smacks of using the judgement as an excuse to stop trying to help taxpayers by promulgating ESCs where the law did not deal with cases in the interstices or created anomalies or a method of achieving fairness would be difficult to enact.

However, that is not the point of this article. On 27 August, HMRC published a technical note on the proposed new Regional Employer National Insurance Contributions Holiday for new businesses other than in the East and South-East of the country. The government want this to operate from 6 September but it needs legislation and the government do not expect this to be enacted until next year.

This note tells us that until Parliament enacts the legislation (assuming that it chooses to do so) “businesses eligible for the Holiday will, as a result of the exercise of HMRC Commissioners’ collection and management powers, be able to receive the benefit of the Holiday from 6 September 2010”.

Curiouser and curiouser …? The “collection and management” power is in the Customs and Revenue Commissioners Act 2005, which replaced the TMA “care and management” power that applied at the time of the Wilkinson decision (given a month after the enactment of CRCA 2005). Granting by concession a completely new relief that Parliament has not even been asked to enact – or to put it another way, declining to collect N.I. that Parliament has told HMRC to collect – seems to me to fall squarely into Lord Hoffman’s prohibited category of conceding a relief which Parliament could have granted but did not grant.

Do HMRC’s 2005 powers go wider than their 1970 ones? They do not appear to me to do so. If they do, it must follow that there never has been a need to enact or scrap a single ESC, as the new HMRC powers were in place before the Wilkinson judgement. So what is going on? Are HMRC contemptuous of the House of Lords and are simply ignoring Lord Hoffman? Is George Osborne – or more likely David Gauke – contemptuous of the House of Lords? Or am I right in thinking that there was never a need to do anything about ESCs and Lord Hoffman simply provided a convenient excuse to withdraw from taxpayers reliefs enacted in those bygone days when the Revenue believed that the tax system ought, by and large, to operate fairly, but which are an inconvenience today when the tax system seems to be largely designed to make taxes easy for HMRC to collect with fairness having become largely an irrelevancy?


Monday, October 11, 2010



Someone sent me a link to an article on noting that in 2008 (the latest year for which figures are available), 2,840 US individuals from households reporting income of at least $1million on their tax returns claimed a total of $18.6million in jobless aid (aka unemployment benefit). 806 of these had income of over $2million and 17 had income of over $10m. Another $52.8m was paid to 8,011 households earning between $500,000 and $1m.

In 2009 Congress voted to exempt from federal income tax the first $2,400 of jobless benefits. The top rate of personal income tax in the US is 35%, so to a millionaire that $2,400 was worth $6,857 net. Unemployment benefit in the US averages $300 per week but lasts for only 26 weeks. So on the full $7,800 dollars a millionaire would be left with $5,910. Not bad for doing nothing other than put in a claim.

This story raises some interesting questions. The first thought in my mind in reading the headline was, “How greedy can some people be?” My second was that surely unemployment pay is not aimed at millionaires and it is unreasonable for such people to claim it even if technically they may fall within the rules.

But I then read the justification from a couple of Washington Think Tanks. One pointed out that, “Unemployment benefits are insurance, funded with taxes paid by employers, and the program isn’t need-based like welfare. A millionaire who loses his or her job is entitled to benefits the same as a laid-off factory or restaurant worker”.

Another said, “Getting an insurance payment doesn’t depend on need but only on suffering an insured loss. We don’t say that your homeowners’ policy shouldn’t pay off if you’re a millionaire”.

Of course we’re in the same position in the UK. Jobseekers Allowance is an entitlement “bought” by payment of employee’s National Insurance, in the same way as in the US Unemployment Insurance is “bought” by payment of FUTA (Federal Unemployment Tax Act) contributions by employers of 6.2% on the first $7,000 a year paid to a worker. The employee gets a credit against his Federal Tax of up to 5.4%, so effectively much of the cost of the “insurance” is met by the State.

I am not personally convinced either by the, “It’s the same as an insurance claim” argument or the “You’re entitled to it” one. It seems to me that both National Insurance and Unemployment Insurance are far more akin to taxation than to genuine insurance.

But the fact that these arguments can be put forward by respected Think Tanks does raise an important issue, namely if the State opts to “sell” to the public a tax, such as National Insurance, by labelling the compulsory contributions (that are not related to the benefit being “bought” by the employee’s earnings) as an insurance premium, is it right to look aghast when the rich take that presentation at face value and claim benefits that they do not need? Indeed if universal Social Security benefits are advertised by the State as an “entitlement”, as frequently happens here, is it reasonable to complain if even the ultra rich claim the entitlement, albeit that most of us would probably think that in making the benefit universal Parliament assumed that the very rich would not expect the State to contribute to their support?