The Revenue service is scrutinising the tax affairs of 900 individuals as part of its Managing Deliberate Defaulters Programme (MDD).
HMRC have decided these taxpayers “deliberately pay the wrong amount of tax or no tax at all”.
The threshold for inclusion is ‘deliberate’ understatement of tax, but if a taxpayer is advised to shelter income in what they believe to be an effective tax mitigation arrangement they could find themselves subject to the MDD.
City lawyers Reynolds Porter Chamberlain say the MDD strategy appears to have been decided unilaterally by HMRC without Parliamentary approval.
The firm says taxpayers targeted in the anti-avoidance crackdown could launch legal challenges against the taxman for breaching their human rights.
“If the MDD impinges on targets’ right to privacy or their right to peaceful enjoyment of their property the HMRC could provoke legal challenges based on the Human Rights Act,” it said.
Examples of planned activity by HMRC which might put those rights at risk include making unannounced inspection visits to carry out pre-return checks of taxpayers’ books and records and inspecting the records of their suppliers or customers.
HMRC may also make test purchases to see whether they are then properly accounted for by the taxpayer.
Jonathan Levy, head of tax disputes at Reynolds, said: “HMRC are obliged to comply with the Human Rights Act and the European Convention of Human Rights.
“Whilst no one should condone deliberate tax evasion, the police do not target ‘known’ criminals in such a way, so it is surprising that the tax authorities have decided to adopt such an approach.”
However some of the taxpayers targeted may simply have a genuine disagreement with the Revenue over a tax avoidance structure they have adopted, the law firm said.
