Scottish Building Safety Levy: consultation

Annex B

Overview of Revenue Scotland’s Investigatory and Enforcement Powers Provided Through the Revenue Scotland Tax Powers Act 2014

Investigatory powers

The Scottish Government considers it appropriate to provide the revenue authority (provisionally Revenue Scotland) with the following investigatory powers:

• Power to open enquiries
• Power to issue determinations, assessments and information notices
• Power to obtain information and documents from taxpayers and third parties
• Power to inspect business premises of taxpayers and third parties
• Power to inspect property for valuation
• Power to mark assets and to record information
• Power to copy and remove documents
• Through the Scottish General Anti-Avoidance Rule (GAAR), the power to take counteraction against tax avoidance arrangements in relation to devolved taxes which it considers to be artificial, even if the arrangements otherwise operate within the letter of the law

These powers mirror the investigatory powers for existing taxes (LBTT and SLfT). The Scottish Government proposes that the same legislative provisions on inspections which currently apply to the existing devolved taxes will also apply to a building safety levy in Scotland.

Most people will co-operate fully when an inspection is carried out. Where this is not the case, a person deliberately obstructing an officer in the course of carrying out an inspection, including in exercising any of the officer's powers, will be liable to a penalty if the inspection has been approved beforehand by the Tax Chamber of the First-tier Tribunal for Scotland.

Enquiries

The Scottish Government proposes that, subject to certain conditions and the time limits set out under Part 6 Chapter 4 of the RSTPA 2014, Revenue Scotland will have the power to open an enquiry into a tax return. The enquiry will be able to cover anything contained (or required to be contained) in the tax return relating to whether the taxpayer is liable to pay tax and/or the amount of tax which is liable to be paid.

Revenue Scotland will, if it considers it necessary, have the power to amend the self-assessment contained in the tax return either during or at the end of the enquiry (for example if not enough, or too much, tax has been paid).

Revenue Scotland will also have the power at any point during the enquiry to exercise any of its other investigative powers, such as issuing an information notice, carrying out an inspection etc.

Tax determinations, assessments and corrections

The Scottish Government proposes that, subject to certain time limits and conditions set out under Part 6 Chapter 5 of the RSTPA 2014, Revenue Scotland will have the power to issue a determination to a taxpayer where it has reason to believe that the taxpayer is liable to pay tax but has not made a tax return by the due date.

Consistent with current arrangements for LBTT and SLfT, the taxpayer will not be able to request a review or appeal in relation to the decision to issue them with the determination but they will be able to request a review or appeal in relation to the determination itself (see the Dispute Resolution section) or displace it by submitting a tax return within the time period allowed.

The Scottish Government also proposes that, subject to certain time limits and conditions set out under Part 6 Chapter 6 of the RSTPA 2014, Revenue Scotland will have the power to issue an assessment to a taxpayer.

In both cases the determination or assessment would state, to the best of Revenue Scotland's information and belief, the amount of tax, penalties and interest which the taxpayer is liable to pay. This amount will be recoverable in the same manner as if it were unpaid tax.

If the determination or assessment contains an under-statement of the taxpayer's tax liability, and the taxpayer is aware of this, the taxpayer may be liable to a penalty for failing to take reasonable steps to notify Revenue Scotland.

The Scottish Government also proposes that, up to 12 months after receiving a tax return, Revenue Scotland will have the power under section 84 of the RSTPA 2014 to amend the return to correct an obvious error or omission.

Information notices

The Scottish Government proposes that Revenue Scotland will have the power, in certain situations and subject to specified rules set out in legislation under Part 7 Chapters 2-3 of the RSTPA 2014, to issue a legal notice (an “information notice”) to a person requiring them to provide information and/or produce documents in relation to a Scottish BSL. The Scottish Government proposes that the same legislative provisions on information notices which currently apply to the existing devolved taxes will also apply to a Scottish BSL.

Additional safeguards will also be provided which prevent or restrict an information notice requiring the provision or production of certain types of sensitive information and documents, such as personal records, journalistic material, legally privileged information, and statutory audit information held by auditors.

Most people will comply with the requirements of an information notice. Where this is not the case, however, the person will be liable to a penalty. It will also be a criminal offence to conceal, destroy or otherwise dispose of (or arrange for the concealment, destruction or disposal of) any document after it has been required to be produced following an information notice which has been approved by the Tax Chamber of the First-tier Tribunal for Scotland.

Inspections

The Scottish Government proposes that Revenue Scotland will have the power, in certain situations and subject to specified rules set out in legislation under Part 7 Chapters 4-5 of the RSTPA 2014, to enter and carry out an inspection of the business premises of either a taxpayer or an “involved third party” in order to check a person’s tax position. This does not include the power to enter or inspect any part of premises used solely as a dwelling.

The Scottish Government proposes that the same legislative provisions on inspections which currently apply to the existing devolved taxes will also apply to a Scottish BSL.

Most people will co-operate fully when an inspection is carried out. Where this is not the case, a person deliberately obstructing an officer in the course of carrying out an inspection, including in exercising any of the officer's powers, will be liable to a penalty if the inspection has been approved beforehand by the Tax Chamber of the First-tier Tribunal for Scotland.

Debt pursuit

The majority of taxpayers will pay the correct amount of money they owe in relation to a Scottish BSL. Some taxpayers may, however, be unable to pay the sum of money on time or will choose not to pay it upon demand.

Where associated companies have registered as group for the tax all members of the group will be jointly and individually liable for any debts relating to the tax.

In cases where a taxpayer has real difficulty paying any money that is due but is willing to find a way of paying, the Scottish Government proposes that Revenue Scotland will have the flexibility (as it does already) to work with the person to find a payment arrangement acceptable to both parties.

There will however be cases where, given the circumstances, it is not possible or appropriate to enter into such arrangements. In such cases, the Scottish Government proposes that Revenue Scotland will be able (as it does already) to undertake civil court proceedings to recover the debt by either:

• applying to the Sheriff Court for a summary warrant to be issued; or
• for particular types of cases, seeking recovery through proceedings before
• either the Sheriff Court or the Court of Session.

Interest

We propose that interest will be charged on any amount of unpaid tax or penalties in relation to a Scottish BSL. This is intended to compensate the tax authority (and therefore the public purse) or the taxpayer for the loss of the use of money, and is not to be viewed as a penalty or other sanction.

To provide for this, the Scottish Government proposes to use the provisions of Part 9 of the RSTPA 2014 and to modify the Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015.

Powers to issue penalties

It is important that the system for Scotland's devolved taxes operates fairly and efficiently. The Scottish Government recognises that the vast majority of taxpayers want to comply with their obligations.

To encourage compliance and deter non-compliance, a range of fixed, daily and tax-geared (or percentage-calculated) civil penalties apply to the devolved taxes. Revenue Scotland has the power in certain circumstances, and for certain penalties, to suspend, reduce or even waive a penalty. The Revenue Scotland website provides guidance on the penalty system for the devolved taxes^[26].

The Scottish Government proposes to adopt the penalty framework provided for in the RSTPA 2014 (see further below), with minor modifications to some penalty provisions to ensure they also cover a levy on new residential development. This will ensure that the civil penalty system for a Scottish building safety levy is consistent with the other devolved taxes.

The Scottish Government considers it appropriate to provide the revenue authority (provisionally Revenue Scotland) with the following powers on penalties:

• Penalties for failure to make a return
• Penalties for failure to pay tax
• Penalties for inaccuracies in taxpayer documents
• In relation to investigations, penalties for failure to comply or obstruction, including failure to comply with the time limit
• Penalties for failure to register for the tax

These powers mirror the powers of penalties for existing taxes (LBTT and SLfT).

Tax Avoidance and Evasion

Where it has the power to do so, the Scottish Government wishes to take the toughest possible approach to tackling tax avoidance in relation to Scotland’s devolved taxes.

The Scottish General Anti-Avoidance Rule (GAAR) is established in Part 5 of the RSTPA 2014. It allows Revenue Scotland to take counteraction against tax avoidance arrangements in relation to devolved taxes which it considers to be artificial, even if the arrangements otherwise operate within the letter of the law.

The Scottish GAAR is significantly wider than the corresponding UK General Anti-Abuse Rule which is based on a narrower test of “abuse” rather than “artificiality‟. The Scottish Government intends that the Scottish GAAR will also apply to a Scottish Building Safety Levy.

Tax evasion (also known as tax fraud) is the illegal non-payment or underpayment of tax, for example by deliberately misrepresenting or withholding information. Fraud (including fraud by agents) is already a common law offence in Scots law, for which the sanction can be an unlimited fine and/or an unlimited term of imprisonment.

For this reason the Scottish Government did not introduce legislation via the RSTPA 2014 for a new offence of evasion of devolved taxes, and new legislation is not therefore considered to be required to ensure that evasion of a Scottish BSL will be an offence. Where it is suspected that evasion of the devolved tax either has taken or is taking place, the matter will be referred to the appropriate authorities by Revenue Scotland for consideration.