The Taxes Management Act 1970: Contemporary Issues in Administration, Compliance and Rights Protection

The Taxes Management Act 1970: Contemporary Issues in Administration, Compliance and Rights Protection

Introduction

The Taxes Management Act 1970 (“TMA 1970”) has for over half a century provided the procedural backbone for the assessment, collection and enforcement of United Kingdom direct taxes. While the Finance Acts fix substantive liability, the TMA 1970 allocates institutional responsibility, prescribes taxpayer obligations, empowers Her Majesty’s Revenue & Customs (“HMRC”) to obtain information and raise assessments, and embeds safeguards designed to ensure legality, proportionality and respect for human rights. The statute has proved remarkably adaptable, surviving successive waves of reform, most notably the self-assessment regime introduced in 1996–97. Drawing on recent case law from the First-tier Tribunal to the Supreme Court, this article critically analyses key provisions, the practical problems they generate and the interpretative principles courts deploy when mediating between efficient revenue collection and taxpayer protections.

Legislative Architecture and Institutional Responsibility

Section 1: “Care and Management”

Section 1(1) TMA 1970 places income tax, corporation tax and capital gains tax “under the care and management of the Commissioners of Inland Revenue”, now HMRC.[1] This confers a broad managerial discretion, akin to that recognised in Wilkinson v Inland Revenue[2], but the discretion is not unfettered; it must be exercised intra vires, consistently with the Human Rights Act 1998 (“HRA 1998”) and principles of public law. The Court of Appeal in Wilkinson confined the breadth of the care-and-management power by holding that HMRC cannot create extra-statutory concessions that would contravene clear statutory limits. More recently, the Supreme Court in Derry v HMRC[5] reaffirmed that managerial discretion cannot override express legislative conditions attaching to self-assessment returns.

Evolution through Self-Assessment

The self-assessment reforms inserted detailed provisions—e.g. ss 8–12AA—requiring taxpayers to compute and report their own liabilities. As Lord Hodge observed in Derry, the TMA 1970 thus “concerns principally the management of the tax rather than fixing liability”.[5] Contemporary litigation accordingly focuses on procedural fairness, evidential burdens and penalty proportionality rather than on the substantive correctness of tax computations.

Taxpayer Obligations: Records, Returns and Accuracy

Section 12B: Record-Keeping Duties

Under s 12B, any person who may be required to file a return must “keep all such records as may be requisite” to enable a correct and complete return and preserve them until the “relevant day”.[1] The First-tier Tribunal (“FTT”) in Mathew v HMRC[1] emphasised that this duty is proactive: it is breached not only where records are destroyed but also where they were never created. The provision interacts with ss 28A–29 in that inadequate records increase the likelihood of discovery assessments or information notices.

Sections 8 & 9A: Notice to File and Enquiries

Section 8 empowers HMRC to serve a notice requiring delivery of a return by the 31 January following the tax year, while s 9A permits HMRC to enquire into any return within the statutory window.[5] In Sear Ahmed v HMRC[14], the Tribunal accepted that unexplained bank deposits constituted a sound basis for opening a s 9A enquiry. The decision illustrates that taxpayer cooperation—producing bank statements, work records or gambling receipts—remains critical to discharging the burden of proof created by s 12B.

HMRC Investigatory Powers

Section 19A and Third-Party Document Powers

Section 19A allows HMRC, once an enquiry is open, to require the taxpayer to produce documents “reasonably required” to determine whether the return is incorrect.[6] The Tribunal in Humphreys v HMRC[6] upheld penalties for non-compliance, holding that the statutory minimum of 30 days affords sufficient time unless exceptional circumstances exist. Parallel powers in s 20 permit HMRC to obtain documents from third parties; Financial Institution No 3[8] demonstrates judicial willingness to authorise bulk information notices targeting offshore accounts where relevance and proportionality are satisfied.

Discovery and Default Assessments (ss 28C & 29)

Where no return is filed, s 28C authorises a “best of judgment” determination.[3] In Bartram v HMRC[3], the FTT construed the provision strictly, stressing that HMRC must demonstrate both the absence of a return and a reasonable basis for the figures assessed. Conversely, s 29 allows discovery assessments where HMRC “discover” an insufficiency of tax. The FTT in Fessal v HMRC[15] held that s 29 must be interpreted compatibly with Article 1, Protocol 1 of the European Convention on Human Rights (“A1P1”), requiring proportionality in quantum and procedure.

Assessments, Amendments and Closure Notices

Sections 28A and 28B regulate closure of enquiries and consequential amendments. Closure notices are vital “gateway” decisions activating appeal rights. In Yip v HMRC[16], the Tribunal reiterated that HMRC must issue a closure notice once they have sufficient information, and may not unduly prolong enquiries as a fishing expedition.

Penalties, Procedural Defects and Remedies

Late Filing and Employer Obligations (ss 93 & 98A)

Employers who fail to submit annual PAYE returns face fixed monthly penalties under s 98A(2)–(3). A substantial body of FTT jurisprudence—Rox Productions[7], Tummy Gym[9], Osher[10], Avon Lee Lodge[11] and Awdry[13]—clarifies the “reasonable excuse” defence. The Tribunals consistently hold that reliance on an agent or ignorance of failed online submissions rarely suffices; the employer must show objectively reasonable steps, persistence and rectification attempts. However, in Awdry, partial relief was granted where confusion arose from HMRC correspondence and the taxpayer acted promptly once the error was understood.

Validity of Assessments: Sections 114 & 115

Sections 114–115 protect assessments from being invalidated for “want of form” or innocent clerical errors, provided substantive conformity with the TMA 1970. In Pitcher v HMRC[4], the Tribunal rejected a challenge based on minor name discrepancies, applying s 114 to preserve the assessment’s efficacy. The provisions thus promote finality, reducing procedural satellite litigation.

Supplementary Claims and Section 42(9)

Taxpayers may correct procedural missteps via s 42(9) claims. The Upper Tribunal in X-Wind Power Ltd v HMRC[12] held that a company which had mistakenly filed an Enterprise Investment Scheme (“EIS”) compliance statement could not rely on s 42(9) to convert it into a Seed Enterprise Investment Scheme (“SEIS”) statement; the original document was a nullity outside statutory time limits. The decision underscores that s 42(9) cures errors of form, not substance.

Human Rights Constraints

Section 6 HRA 1998 renders it “unlawful for a public authority to act in a way which is incompatible with a Convention right”. In revenue matters, A1P1 (peaceful enjoyment of possessions) and Article 6 (fair trial) are the dominant rights. The FTT in Fessal invoked A1P1 to modulate the quantum of a discovery assessment, while Bosher (dicta considered in Fessal) reveals limits on the Tribunal’s power to reinterpret penalty provisions under s 3 HRA. The consistent judicial approach is a two-stage analysis: (i) does the outcome interfere with possessions; (ii) if so, is the interference proportionate to the legitimate aim of tax collection?

Procedural Fairness and Judicial Review

Although the TMA 1970 provides statutory appeal routes—ss 31–31B—the supervisory jurisdiction of the Administrative Court remains vital where HMRC exercises managerial discretions not subject to appeal, for example, decisions not to mitigate penalties or to refuse extra-statutory concessions (Wilkinson). Taxpayers must, however, exhaust alternative remedies unless ineffectual.

Conclusion

Half a century after enactment, the TMA 1970 continues to balance efficient revenue administration with taxpayer rights. Recent jurisprudence illustrates three thematic trends: (1) strict yet purposive statutory interpretation preserving HMRC’s core functions; (2) increasing reliance on proportionality and human rights standards to temper investigatory powers and financial sanctions; and (3) judicial insistence that taxpayers maintain accurate records and comply promptly with information notices, failing which penalties will seldom be disturbed. The statute’s resilience lies in this dynamic equilibrium—facilitating fiscal necessity while embedding procedural justice. Ongoing digitalisation, data-driven compliance and post-Brexit adjustments will undoubtedly stress-test the TMA 1970; yet its foundational principles of care, management and fairness are likely to endure.

Footnotes

  1. Taxes Management Act 1970, ss 1 & 12B.
  2. Wilkinson (R on the application of) v Inland Revenue [2003] EWCA Civ 814.
  3. Bartram v HMRC [2011] UKFTT 677 (TC).
  4. Pitcher v HMRC [2017] UKFTT 0534 (TC).
  5. Derry (R on the application of) v HMRC [2019] UKSC 19.
  6. Humphreys v HMRC [2010] UKFTT 299 (TC).
  7. Rox Productions Ltd v HMRC [2014] UKFTT 483 (TC).
  8. Financial Institution No 3 v HMRC [2007] STC (SCD) 754.
  9. Tummy Gym/Gymophobics Hucknall Ltd v HMRC [2014] UKFTT 238 (TC).
  10. Osher (t/a Marathon Motors) v HMRC [2014] UKFTT 509 (TC).
  11. Avon Lee Lodge v HMRC [2014] UKFTT 463 (TC).
  12. X-Wind Power Ltd v HMRC [2017] UKUT 290 (TCC).
  13. Awdry v HMRC [2014] UKFTT 791 (TC).
  14. Sear Ahmed v HMRC [2019] UKFTT 560 (TC).
  15. Fessal v HMRC [2016] UKFTT 0285 (TC).
  16. Yip v HMRC [2014] UKFTT 755 (TC).