2005 Chapter 11

© Crown Copyright 2005

Explanatory Notes to Acts of the UK Parliament are subject to Crown Copyright protection. They may be reproduced free of charge provided that they are reproduced accurately and that the source and copyright status of the material is made evident to users.

It should be noted that the right to reproduce the text of these Explanatory Notes does not extend to the Queen's Printer imprints which should be removed from any copies of the Explanatory Notes which are issued or made available to the public. This includes reproduction of the Notes on the internet and on intranet sites. The Royal Arms may be reproduced only where they are an integral part of the original document. The text of this internet version of the Explanatory Notes which is published by the Queen's Printer of Acts of Parliament has been prepared to reflect the text in printed form and as published by The Stationery Office Limited as the Commissioners For Revenue And Customs Act 2005, ISBN 0105611050. The print version may be purchased by clicking here. Braille copies of the Explanatory Notes can also be purchased at the same price as the print edition by contacting TSO Customer Services on 0870 600 5522 or e-mail: customer.services@tso.co.uk.

Further information about the publication of legislation on this website can be found by referring to the Frequently Asked Questions.

To ensure fast access over slow connections, large documents have been segmented into "chunks". Where you see a "continue" button at the bottom of the page of text, this indicates that there is another chunk of text available.

These notes refer to the Commissioners for Revenue and Customs Act 2005 (c.11) which received Royal Assent on 7 April 2005.

COMMISSIONERS FOR REVENUE AND CUSTOMS ACT 2005

EXPLANATORY NOTES

Background

3.     In July 2003 the Chancellor of the Exchequer announced a major review of the organisations dealing with tax policy and administration: ¹ HM Customs and Excise, the Inland Revenue, and HM Treasury. Gus O'Donnell, Permanent Secretary to the Treasury, was responsible for leading the review. He published his report ² alongside the March 2004 Budget, and the Chancellor announced that he accepted its recommendations. This Act implements the main recommendation - to create a new department integrating the Inland Revenue and HM Customs and Excise. The new department is called "Her Majesty's Revenue and Customs" (HMRC) ³.

¹ Treasury Press Notice, 2 July 2003, available at www.hm-treasury.gov.uk

² Financing Britain's Future. Review of the Revenue Departments by Gus O'Donnell, March 2004

³ Treasury Press Notice, 13 May 2004, available at www.hm-treasury.gov.uk

4.     The Customs and Excise Prosecutions Office was created in April 2003 and operated under the terms of a Memorandum of Understanding agreed between the Attorney General, Treasury Ministers and the Commissioners of Customs and Excise. Following specific recommendations made in the Hon. Mr Justice Butterfield's Review ⁴, and accepted by Ministers in December 2003. The Act puts the prosecutions office on a statutory footing, and provides for it to undertake all the new department's prosecutions in England and Wales (i.e. including those formerly carried out by the Inland Revenue). The new prosecutions office is called "the Revenue and Customs Prosecutions Office (RCPO) ⁵. The new Memorandum of Understanding between the Attorney General, Treasury Ministers, the Commissioners for HMRC and the Director of RCPO is available on www.rcpo.gov.uk.

⁴ The Review of Criminal Prosecutions Conducted by HM Customs and Excise (15 July 2003)

⁵ Attorney General's written statement 12 October 2004 Column WS9.

OVERVIEW OF THE ACT

5.     The Act establishes HMRC and RCPO. It includes provisions for the effective governance and operation of the new organisations. The following overview paragraphs summarise the purpose of the sections, with the detail of how each section achieves this set out in the commentary section.

HM Revenue and Customs general (sections 1, 2, 4, 9, 11 to 14)

6.     The new department, like its predecessor departments, is a non-ministerial government department. The Queen appoints Commissioners for Her Majesty's Revenue and Customs who exercise statutory functions on behalf of the Crown. They are able to appoint officers of Revenue and Customs, who work under their directions. Officers, subject to and acting under the direction of the Commissioners, are able to exercise any of the Commissioners' functions, apart from the making of statutory instruments; the giving of general instructions about on classes of disclosure of information under section 20(1)(a); and approving the making of applications for search warrants relating to former Inland Revenue functions.

7.     The Act provides that, in the exercise of their functions, the Commissioners will comply with directions of a general nature given to them by the Treasury. It provides the legislative structure within which the Commissioners have the operational discretion to organise in the most appropriate way, and to make changes over time as necessary. With the agreement of at least half the Commissioners, they may decide on arrangements for the conduct of proceedings and of their committees, including matters such as quorum and delegations.

Functions and powers (sections 5 to 7 and 16 and Schedules 1 and 2, Part 1)

8.     The Commissioners are responsible for all the functions (bar prosecutions as a result of section 35), which were previously the responsibility of the Commissioners of Inland Revenue and the Commissioners of Customs and Excise. Officers of Revenue and Customs may exercise all of the functions of Inland Revenue and Customs and Excise officers, unless stated otherwise.

9.     The Act identifies all of the functions previously carried out by the Inland Revenue (see Schedule 1). It provides that powers previously available to the Commissioners of Customs and Excise and their officers may not be used for these former Inland Revenue functions, while powers previously available to the Commissioners of Inland Revenue and their officers may only be used for these functions. This is to prevent any inadvertent widening of powers in the new department.

Power to transfer functions (section 8) and Agency functions (section 15)

10.     Section 8 enables HMRC functions (other than revenue ⁶ or tax credit functions) to be transferred out of HMRC to a ministerial department, and any functions to be transferred into HMRC from such departments by Order in Council (rather than primary legislation). This is achieved by amending the Ministers of Crown Act 1975. Equivalent provisions apply to the Scotland Act 1998 and the Government of Wales Act 1998. And the Act also allows HMRC to enter into 'agency' arrangements with Scotland and Northern Ireland, where a function may be exercised on behalf of HMRC by a Scottish Minister or Northern Ireland Department, or HMRC may exercise a function on behalf of the Scottish Minister or Northern Ireland Department.

⁶ Revenue is defined as taxes, duties and national insurance contributions

Valuation Office (section 10)

11.     The Act puts on a statutory footing functions formerly undertaken by officers of the Inland Revenue through the Valuation Office Agency in respect of the valuation of property.

Use of information (section 17 and Schedule 2, part 2)

12.     These enable information acquired by HMRC in connection with a function to be used for any of its other functions. Prior to the formation of HMRC information could be passed between the Inland Revenue and Customs and Excise through statutory gateways. This section enables the department to pool all its information, irrespective of the purpose for which it was originally obtained. The use of such information within the organisation is subject to any prohibition imposed by other enactments, including by the Data Protection Act 1998 and the Human Rights Acts 1998. Management controls ensure that the use of the information is appropriate and proportionate.

13.     The Act also provides for HMRC to have the same statutory gateways for information to be passed to other government departments as Inland Revenue or Customs and Excise had.

Confidentiality and wrongful and public interest disclosure (sections 3 and 18 to 23)

14.     Section 18 sets out the statutory duty of officers, Commissioners (and others acting on their behalf, and their committees) not to disclose information held by HMRC unless authorised to do so - and sets out the circumstances where disclosure may be allowed. Section 3 provides that Commissioners and officers newly appointed to HMRC shall make a declaration acknowledging this duty.

15.     Section 19 makes unauthorised disclosure of information relating to an identifiable person a criminal offence carrying a maximum penalty of imprisonment for up to 2 years and an unlimited fine. This widens the previous criminal offence of unauthorised disclosure of information held in relation to tax and other functions, which did not cover information obtained in the course of Customs' non-revenue functions.

16.     Section 20 introduces a provision enabling the Commissioners to instruct officers to disclose confidential information where it is in the public interest to do so, and sets out the conditions and circumstances under which such disclosures may be made. An affirmative regulation making power is provided enabling Treasury Ministers to respond to changes in circumstances.

17.     Section 21 covers the circumstances when Revenue and Customs officials may disclose to a prosecuting authority, for advice or for the commencement of proceedings. Information disclosed in this way is subject to ongoing confidentiality safeguards.

18.     Section 22 confirms that nothing in the confidentiality section contravenes the provisions of the Data Protection Act 1998 or the Regulation of Investigatory Powers Act 2000. Similarly, section 23 clarifies the interaction between the confidentiality sections and the Freedom of Information Act 2000.

Proceedings (sections 24 to 26)

19.     These sections make provision for the effective working of HMRC and replace provisions which applied in a different way to the Inland Revenue and Customs and Excise:

• Evidence (section 24): provides for the legal admissibility of official departmental documents in court;

• Conduct of civil proceedings (section 25): This sets out the rights of officers to conduct civil proceedings in respect of HMRC functions; and

• Rewards (section 26): The Commissioners may pay rewards, at their discretion, for services to HMRC (e.g. to a member of the public who went out of their way to report suspicious circumstances that turned out to be drug smuggling).

Inspection and complaints (section 27 to 29)

20.     The Act provides for HM Inspectors of Constabulary (HMIC) to scrutinise how HMRC ensures compliance with the laws, rules and procedures of the criminal justice system in the United Kingdom. It also provides for the expansion of the Independent Police Complaints Commission's (IPCC) remit to include investigations into complaints made about HMRC officers when conducting criminal investigations; and alleged criminal conduct or gross misconduct by an HMRC officer.

21.     The Act provides that, in relation to information obtained in the course of their HMRC functions, HMIC and IPCC should be bound by a duty of confidentiality, and unauthorised disclosure should be an offence carrying a maximum penalty of 2 years imprisonment and an unlimited fine.

22.     The Act provides regulation-making powers, with the detail of the inspection and complaints provisions to be in regulations. The regulations made under the section 27 powers (in relation to HMIC) are in force from 29 April 2005 and may be obtained from HM Stationery Office (The Revenue and Customs (Inspections) Regulations 2005 No. 1133). The regulations in respect of IPCC will be brought forward later in 2005.

Offences (sections 30 to 33)

23.     The Act consolidates former criminal offence provisions relating to the Inland Revenue and HM Customs & Excise, to create a single framework for these offences within HMRC. In addition to consolidating those offence provisions, the Act brings their penalties into line with the equivalent Police offences. The offences are assaulting, obstructing or impersonating an officer of Revenue and Customs. Section 33 provides HMRC officers, where authorised by Commissioners, with the power of arrest for these offences.

24.     The Act also repeals the existing offence of bribery and collusion in respect of Customs and Excise matters, without replacement. Matters of corruption are covered within HMRC by the Prevention of Corruption Act 1906 and the common law offences of misbehaviour in public office and bribery.

Revenue and Customs Prosecutions Office (sections 34 to 42, 49 and Schedule 3)

25.     These sections put the independent prosecutions office (RCPO) on a statutory footing. A Director, appointed by the Attorney General, heads the Office and employs all RCPO staff. The remit of the Office is to provide legal advice and institute and conduct criminal prosecutions (and related proceedings such as the restraint and confiscation of assets) in England and Wales where there has been an investigation by HMRC. It does so in accordance with the Code for Crown Prosecutors and publishes an Annual Report detailing the exercise of the Director's functions during the previous financial year. The Director exercises his functions under the superintendence of the Attorney General.

26.     Section 40 sets out that RCPO may not disclose information relating to an identifiable person except in specified circumstances. It provides that unauthorised disclosure is an offence carrying a maximum penalty of two years' imprisonment and an unlimited fine.

27.     The Office is also subject of external inspections by HM Crown Prosecution Service Inspectorate. The Act (section 49) also made provision for the Treasury to identify Customs and Excise and Inland Revenue property, rights and liabilities which transferred to RCPO, and not to HMRC. Additionally, section 49 transferred to the Director those legal proceedings which, prior to commencement of the Act, were being conducted by the Commissioners of Customs and Excise and Inland Revenue, and which fall within his functions (being criminal prosecutions and related proceedings).

Money (section 43 to 47)

28.     HMRC is funded by monies voted by Parliament. The Commissioners pay all money received on account of taxes, duties etc. into the Consolidated Fund, other than money that is required by law to be otherwise accounted for e.g. National Insurance Contributions, Student Loan repayments and National Minimum Wage fines. They may deduct disbursements from payments into the Fund, in particular for tax credits and tax (mainly VAT) repayments. Where it is likely that the amount of such disbursement and other contributions will exceed HMRC's receipts, the Treasury may make payments to the Commissioners out of the Consolidated Fund, such payments being subject to oversight by the Comptroller and Auditor General. The Commissioners must send daily accounts of the monies they receive, and the disposal of those monies, to the Comptroller and Auditor General.

Transfer of property etc; transitional arrangements and consequential amendments and repeals. (Sections 48, 50, 52, 54 and 55; Schedules 4 and 5)

29.     The Act made provision for the effective transfer of Customs and Excise and Inland Revenue property, rights and liabilities etc. to HMRC. Transitional provisions ensured that all the authorisations, decisions, and actions that were valid within the two predecessor departments continued in the new department. Consequential amendments were made to other enactments, and section 50(4) also provides for further consequential amendments to be made through Treasury regulations. Obsolete provisions were repealed.

Commencement (Section 53)

30.     The Act came into force by the Commissioners for Revenue and Customs Act 2005 (Commencement) Order 2005 No. 1126 (C.51). All sections except those listed below were brought into force from 7 April 2005. Sections 5 to 8, 16 and Schedule 2 Part 1, 35, 36, 50 and Schedule 4, 52 and 54 come into force on 18 April 2005 - the launch day of HMRC and RCPO. This enabled preparation for launch of the new departments to commence straight after Royal Assent.

ANNEXES

31.     There are two annexes at the back of the Explanatory Notes.

32.     Annex A lists many of the provisions in this Act which have counterparts in legislation relating to the Inland Revenue and Customs and Excise.

33.     Annex B lists the standard abbreviations of enactments and technical terms used in these notes.

COMMENTARY ON CLAUSES

Section 1: The Commissioners

34.     This section establishes a body of Commissioners to be known as the Commissioners for Her Majesty's Revenue and Customs (HMRC) - or as Comisynwyr Cyllid a Thollau Ei Mawrhydi in Welsh. The section sets out the Commissioners' status and tenure.

35.     Subsection (1) provides for the Crown to appoint Commissioners to hold office in accordance with the terms of their appointment in the Letters Patent. Such Letters Patent for the Commissioners of the predecessor departments traditionally designated one Commissioner as chairman. It is intended to continue that practice.

36.     Subsections (4) and (5) provide that the Commissioners act on behalf of the Crown and are civil servants. This continues the arrangements for the predecessor departments, and it is intended that one of the Commissioners will be appointed by the Prime Minister to be Permanent Secretary of HMRC, and by the Treasury to be Principal Accounting Officer. In practice this will be the Commissioner designated chairman in the appointment Letters Patent.

Section 2: Officers of Revenue and Customs

37.     Subsection (1) provides for the Commissioners for HMRC to appoint staff to be known as officers of Revenue and Customs. Officers will support the conduct of HMRC's day-to-day work.

38.     Subsection (3) requires officers to comply with the Commissioners' directions, when carrying out their functions or functions on behalf of the Commissioners.

39.     Subsection (4) allows for continuity where actions, including proceedings, are begun by one officer of Revenue and Customs and continued by another.

40.     Subsections (5) and (6) provide for officers to be civil servants. The terms of an officer of Revenue and Customs' appointment may include provision for suspension or discharge (subsection (2)).

41.     The description of "officers of Revenue and Customs" replaces the previous nomenclature for describing staff who were empowered to exercise the functions of the predecessor departments, e.g. inspectors, collectors, receivers, authorised persons, etc. (see section 50(2)).

Section 3: Declaration of confidentiality

42.     Subsection (1) provides that Commissioners and officers appointed under sections 1 and 2 of the Act following the creation of the new department are to make a statutory declaration acknowledging the obligations of confidentiality imposed on them under section 18 of the Act.

43.     Subsection (2) provides that the declaration shall be made as soon as reasonably practicable, following appointment, and in such form, and before such person as the Commissioners may direct. The reference to "reasonably practicable" recognises that officers will not sign the acknowledgement the moment they take up duty.

Section 4: "Her Majesty's Revenue and Customs"

44.     Subsection (1) provides that the Commissioners for HMRC and officers of Revenue and Customs together will constitute a non-ministerial government department called Her Majesty's Revenue and Customs.

Section 5: Commissioners' initial functions

45.     Subsections (1) and (2) transfer to the Commissioners for HMRC responsibility for the exercise of the revenue, tax credit and other functions previously the responsibility of the Commissioners of the predecessor departments, except for the conduct of prosecutions of Revenue and Customs offences in England and Wales (as a result of subsection (3) invoking section 35). The expression of Commissioners' responsibilities preserves the managerial discretion available to the predecessor Commissioners in the exercise of their functions. Details about arrangements for the Commissioners' exercise of functions are at section 12, for the exercise of Commissioners' functions by officers are at section 13, and for the exercise of delegated functions are at section 14.

46.     The Commissioners' responsibility for the collection and management of revenue is defined in section 51(3) as meaning the same as "care and management" in previous enactments. It thus preserves continuity of treatment for those revenues that previously were subject to a duty of care and management, as this term is familiar to the wider business, legal and tax practitioner communities and to officials. Subsection (4) defines the expression "revenue" to include taxes, duties and national insurance contributions.

47.     Subsection (2) gives the Commissioners for HMRC responsibility for all other functions, i.e. those which are neither revenue nor tax credits, of the predecessor departments. For example, the Commissioners of Customs and Excise have the function of investigating suspected offences of dealing in tainted cultural objects under section 4 Dealing in Cultural Objects (Offences) Act 2003. "Functions" is defined at section 51(2) to mean any power or duty.

Sections 6 and 7 and Schedule 1: Transfer of officers' powers.

48.     These sections transfer the functions of Inland Revenue and Customs and Excise staff to officers of Revenue and Customs. They also place a restriction on the transfer, so that powers previously used by Customs and Excise staff may not be used in respect of matters inherited from the Inland Revenue, and powers previously used by Inland Revenue staff may only be used for matters inherited from the Inland Revenue. This 'ring fencing' is intended to prevent any accidental widening of the scope of existing officers' powers. Accidental widening of Commissioners' powers is prevented by Schedule 2 Part 1.

49.     Most powers are defined in their own legislation as relating only to specific functions, and these definitions will remain unchanged. For example, the Inland Revenue power to require someone to produce their financial records can only be used in order to enquire into their direct tax return. But some powers have a wider scope, relating to any matter assigned to the Commissioners of the department in question, or to any tax within the care of that department. Because of the general deeming provisions in section 50 they would come to apply to matters inherited from the other department as well, unless these restrictions in sections 6 and 7 and Schedule 2 Part 1 are introduced.

Example:

50.     Customs officers currently have a power under the Proceeds of Crime Act to search premises or persons for cash which may have been obtained through unlawful conduct. This power is restricted to cases where the unlawful conduct relates to a matter dealt with by Customs and Excise, but it is not explicitly limited to indirect taxes and duties. If it were transferred to officers of Revenue and Customs without restriction it could be used, for instance, where the unlawful conduct related to income tax. These sections prevent such an accidental widening of the scope of officers' powers.

Section 6: Officers' initial functions

51.     This section transfers the powers and duties of Customs and Excise staff to the officers of Revenue and Customs. The transfer is made by subsection (1), and the various descriptions of Customs and Excise staff are given in subsection (2). Subsection (3) makes this section subject to section 7(4). This means that the powers transferred may not be used in relation to matters inherited from the Inland Revenue. The transfer is also subject to section 35, which transfers functions relating to criminal prosecutions to the Director of the Revenue and Customs Prosecutions Office.

Section 7 and Schedule 1: Former Inland Revenue matters

52.     Subsection (1): This applies to former Inland Revenue matters, and those matters are listed in Schedule 1. The list is supplemented by a list of obsolescent functions at section 54(4).

53.     Subsection (2): The functions of Inland Revenue staff are transferred to officers of Revenue and Customs. But they are only transferred to the extent that they relate to former Inland Revenue matters. An officer of Revenue and Customs can use all of the current Inland Revenue powers, but only in relation to former Inland Revenue matters. This is the first half of the ring-fence.

54.     Subsection (3): This lists the various descriptions of Inland Revenue staff, whose functions are being transferred.

55.     Subsection (4): This disapplies the transfer of Customs and Excise officers' powers to the extent that an officer of Revenue and Customs is exercising a former Inland Revenue function. So an officer of Revenue and Customs may not use Customs and Excise powers in relation to former Inland Revenue matters. This is the second half of the ring-fence.

56.     Subsection (5): This makes the transfer of Inland Revenue functions to HMRC subject to the transfer of criminal prosecutions to the Director of the Revenue and Customs Prosecutions Office.