This article by Nick Morgan, of www.tax-hell.co.uk fame, appeared in the Sunday Times at the beginning of the 2008-09 tax year. We would make the following comments 16 months on: 

• Tax is certainly not getting any simpler.
• It is true that negotiation still plays a part in investigation cases. The Litigation and Settlement Strategy of HMRC has made it increasingly hard to get HMRC to negotiate on technical matters, especially those that have not arisen from an investigation. That may seem somewhat illogical. Part of “sticking to your guns” is being prepared to fight the case at the Tax Tribunal.
• HMRC have certainly been exploring the boundaries in relation to “discovery”. They have had some success in the Special Commissioners and at Judicial Review which has given them encouragement, but one should not necessarily interpret the case law as widely as HMRC might like. There is often scope to resist. HMRC will be quick to refer to case law that supports their position, even if a matter is not yet final.
• We do not subscribe to the view that you are guilty until you prove otherwise. Evidence is very important, although it can sometimes seem as though the lack of any does not prevent a good investigation! HMRC are entitled to make reasonable enquiries and have their legitimate concerns addressed, but we would not expect someone to be taxed on something unexplained in the absence of some evidence that it should be.
• Interviews are often not necessary. Questions can often be put in writing and addressed with due consideration before replying in the same manner. When an interview is the best way to make progress, the taxpayer should not see it as a trap if properly prepared, although we can see how someone unrepresented could end up feeling that way.
• Lifestyle questionnaires are not a substitute for evidence.
• Sadly, investigations do take time, although this is not always down to HMRC! If one appreciates what HMRC is entitled to know and sets about providing it swiftly, there is no reason for the investigation to drag on. One of the tools available to the taxpayer is to apply to the Tax Tribunal for a direction to issue a closure notice. If the application is properly prepared based on the facts and the evidence this tool is effective, but it should not be employed prematurely, while HMRC still lack information they can reasonably require. When HMRC’s questions have been answered, a specialist will not let an investigation drag on.
• The use of the Data Protection Act and Freedom of Information is likely to play a greater part in contentious tax issues. Nick Morgan did well to get on to this! There is a time to complain in appropriate cases but it should rarely be necessary.
• “Scaling back” has always been a part of settlement negotiations. It only arises if there has been a tax loss attributable to an error that is likely to have occurred in a previous year and in many cases it will be completely inappropriate to consider going back 20 years. Mind you, if someone has been “on the fiddle”, we can see no objection to scaling back.
• HMRC does have more power although some of the provisions have been watered down a little as a result of representations from professional bodies during consultation. What is now urgently needed is a Taxpayer’s Charter” with statutory backing to provide some balance in cases that go too far. Consultation on a Charter is ongoing, but HMRC wishes it to be quite different from what is really needed, and wants it to be non-statutory. There will always be some excesses or even abuses of power by HMRC, as long as the Department is comprised of human beings, and as long as there are persons who will evade tax. Knowing and understanding the boundaries is key in preventing or countering excessive use of powers, new and old.