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HMRC internal manual

Admin Law Manual

HM Revenue & Customs
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Collection and Management: Tests to apply

This section outlines the tests which you must apply if you wish to consider using the Commissioners’ powers of discretion under section 5 of CRCA 2005.

The starting point in all cases must be that HMRC should apply the law correctly. However, if in a particular case this does not seem the best course of action, for example if might be unduly expensive to administer, you can consider if it is appropriate to exercise the Commissioner’s discretionary powers using the following tests.

What would give the highest net return?

HMRC has to collect all of the tax under its care, but must do so in the most efficient way. In some cases, applying a discretionary treatment might result in a higher net return to the Exchequer than if the law is strictly adhered to. For example, if it would cost £10,000 to collect £1,000 in tax due, a higher net return to the Exchequer would be achieved by not collecting the tax in question. In such cases, it would be reasonable to allow concessionary treatment because that will result in a net increase in funds to the Exchequer.

ESCs cannot be applied retrospectively, other than in the most exceptional cases. HMRC must collect the correct amount of tax, though can exercise some discretion in the circumstances detailed in this manual. However, once a taxpayer has submitted a return or document showing the correct amount of tax as due in law, he cannot claim a retrospective entitlement to an ESC. You should not agree any such claims without first contacting Tax Admin Policy Team Is the law clear?

Where the law is clear, HMRC must apply it correctly (subject to any other considerations in this section). However, if the law in a particular situation is unclear, HMRC can make a purposive interpretation. In other words, when the law is not clear, HMRC can try to interpret what effect Parliament intended to achieve and act accordingly. Where possible in such cases, you should consult Hansard to see if there was any reference in the House to what the law in question was designed to achieve. This might help you to find the intended policy objective, but Hansard is not admissable in any proceedings unless it meets the conditions laid down in Pepper v Hart 1993.

If you have a case where you think the law is unclear and you wish to make a purposive interpretation, you must consult the Tax Admin Policy Team in Central Policy. It might be necessary to obtain legal advice as well.

Is there a minor or temporary anomaly that needs to be addressed?

It is sometimes the case that the strict application of the law could have unforseen or unintended effects that would cause difficulty for taxpayers or the department, or would be counter to the intended effects of the law. If these effects are likely to be considerable or to be of indefinite length, it is not generally possible to exercise the powers of discretion to overcome them. In such cases, policy teams should consider amending the law to remove the unintended effects.

However, if these unintended effects are minor or temporary, it might be possible to exercise discretion to overcome them.

If you think you have a case where the law is clear but creates a temporary or minor anomaly, you must consult the Tax Admin Policy Team in Central Policy before deciding on any concessionary treatment. It might be necessary to obtain legal advice as well.