Disingenuous HMRC

Last June I mentioned a lady on whose behalf I had made a claim under ESC A19. She had visited the local office of HMRC, back when they had one, to ensure that her tax would be dealt with correctly following the recent death of her husband. Her claim for relief from a quite considerable amount of back tax owing as a result of HMRC's failure to act following her visit was turned down.

On behalf of my client at the end of May 2012 I appealed against the decision. At this stage it was by making a formal complaint given that the relief requested is actually discretionary as far as HMRC is concerned.

I had heard nothing from HMRC by September so I telephoned and was advised that the matter had been “brought forward” which is Civil Service speak for not actually having done anything but not yet lost the file or record. I called subsequently without getting news of further progress, and again after the January tax return rush was over. I was then told by the call centre that I would get a call back from the relevant office within five working days.

I did get a call back within two days from a Complaints Officer. The conversation went something like this:

Complaints Officer (CO) “We replied to your letter of 30^th May last July. Did you not receive it?”

Me: “No.”

CO: I think it was probably never sent. I will fax you a copy. You won't be surprised to learn that your request for relief (under ESC A19) has been turned down again”.

Me: “Why was I told in September that the record had been brought forward if a letter had been sent?”

CO: “Because your client has complained to her MP so we kept it open.”

So I received the faxed letter with the date “July 2012” but no actual day typed or written in, so it is fair to assume that the letter was indeed never sent and that Royal Mail are not to blame.

The reasons the further request for relief have been turned down include that the end-of-year pension providers' PAYE Returns submitted in May each year do not count as information HMRC could reasonably have used although they “appreciate how tempting it is to assume these immediately become available for ESC A19's purposes.” Well, blow me, if someone send me an email, letter or fax that I actually receive (unlike HMRC's letter) I have the information and it is my fault if I neglect to do anything with it.

The seven-month-old letter goes on to stress that the information they receive allows them up to four years to review the tax position. Well, we know that. It's the law. It has nothing to do with whether HMRC acted properly and whether they should give up the tax they did not collect in accordance with a long-established concession and precedent.

They at least concede that my client is not a liar and accept she did visit the tax office after her husband died. However according to HMRC she could not apparently have “reasonably believed” her tax affairs were in order following the issue of an incorrect coding. That assumes she would have had some knowledge of tax (something HMRC unreasonably wishes to impute on all taxpayers in a recent consultation on the concession) and that her understanding was not skewed in the trauma of bereavement.

My client and I are not leaving it there and we will return to the fray. We have further grounds for complaint in their not sending the letter and not mentioning it over the telephone two months after it had been typed and left on file, unsigned. Of course the whole letter is complete and utter nonsense arguing in the face of what would have been a simple case of allowing the relief if a request had been made in 2010 or earlier.

There is no doubt that HMRC has sent round a memo instructing that all claims be turned down on whatever grounds. Their correspondence is disingenuous and frankly, they might as well abolish the concession altogether rather than just change it, if they are intending to turn down all future claims.

HMRC need not be afraid of one bad write-up in the Daily Mail if they even get one. After all, the politicians and the public have too much fun bashing the multi-nationals for sensible tax planning, and for whatever reason this tax abuse of small taxpayers who are mostly pensioners is being largely ignored by the media. It seems that politicians who count in this matter are not going to help.

Isn't it all a disgrace?

The thought police and the right amount of tax

Secret denunciations against anyone who will conceal favors and services or will collude to hide the true revenue from them. (Photo credit: Berthold Werner via Wikipedia)

Being shot at

 

These days it is really tough being a tax professional in the UK. There is hardly a day goes by without some media frenzy about supposed immoral tax avoidance, and we get all the blame as the villains of the piece. Many of us might be forgiven for being confused by all the hot air and smoke and mirrors into forgetting what tax avoidance is, so if you have, please remind yourself here.

The Jimmy Carr affair was the worst flare-up this year with the “comedian” being lambasted for wanting to pay less tax on his surprisingly high income. Yet in truth while only 26% of the population think tax avoidance is morally acceptable as against 64% who don't, 42% would probably employ someone to help them avoid tax as against 29% who wouldn't. On the face of it there are double standards among those asked, but perhaps not if we think about this a bit more.

I do not advise my clients on tax avoidance. If they engage in a scheme provided by someone else, that scheme will not have been recommended by me. I would likely brief the client on the risks of an HMRC enquiry and that the scheme might not work and that the client will very likely have to wait a long time to find out if it does.

What I do offer my clients is ways of paying the least amounts of tax under the current law as intended by Parliament. That is as morally acceptable as telling someone petrol is cheaper at one service station than it is at another, isn’t it?

Oppressive Culture 

 

The current climate or political culture, supported joyfully by the media, is that people and especially businesses should pay as much tax as possible. This now extends to international or multinational companies being expected by the press to pay tax when they have not made any money in the UK. Normally if one has no profit (i.e. no net income) one should not have to pay tax, but apparently it is thought that Facebook and Starbucks should, just because they are big and make profits elsewhere.

In a tax forum a well known tax commentator likened our tax system to the East German model, and it seems that some learned judges have been intimidated by the political climate into reaching decisions which favoured HMRC, but seemed strange. I had better not say more because there would be nothing worse than being sued by a lawyer.

Just the same, there is no public political dissent from the notions that not only should we not indulge in tax avoidance schemes, but that reasonable tax planning with contractors working through personal service companies is somehow morally beyond the pale. That is notwithstanding that so many Government agencies have insisted on contractors working through companies to avoid their obligations as employers on the human resources side, including giving notice, redundancy, providing pensions, as well as avoiding paying Employer's National Insurance on their tight budgets.

The new Communism

 

So the three main political parties all sing from the same hymn sheet, and anyone in politics brave enough to disagree would be instantly lambasted and attacked by the media, with the Treasury and Opposition spokespeople getting on their high horses. They would be joined by the usual suspects, purporting to represent the best interests of the workers on whose behalf they claim to speak.

Sadly, what has happened somehow over the last dozen years is that the State has instilled this belief amongst so many that there are others who are up to something, somehow fiddling their taxes down. Because so many people have suffered in the economic downturn, this belief is whipped up by politicians and their willing media by envy (it sells newspapers).

So in many ways our capitalist state has become like an old Communist State. I recommend this if you can spare ten minutes more of your time. Privately no one really believes everything they are told but publicly they are afraid to speak out simply to say that the picture painted is totally false.

From the public opinion poll mentioned above, we might infer that some of the 64% who say that tax avoidance is unacceptable say it because the thought police would get them, but privately admit they might do it themselves given the chance. Somehow, those of us who advise on tax but do not do tax avoidance have just the same been tarred with the same brush as the tax avoidance promoters.

We are innocent, OK?

 

The tax avoidance “industry” is a relatively small and accounts for £5 billion out of the £32 billion tax gap estimated by HMRC. That is not small beer even at less than one-sixth of the tax “lost” but very few tax professionals are involved in tax avoidance anyway. We are not wicked for assisting our clients through the diabolical bureaucratic tax maze that has been created. We help our clients get on with their lives and their businesses, to help stimulate the economy and help get the country out of the mess created on the watch of many of the current leading politicians.

Are we allowed to be heard outside our own cloisters?

HMRC wasting our money on trivial matters

Posting paper

These two cases nearly slipped by without my noticing, but really we have to wonder why HMRC do not use their resources rather better.

In Eamas Consulting LLP v HMTC 4.4.12 TC 02009 a partnership received a paper Tax Return for 2007-08 in April 2008. HMRC issued a penalty notice in February 2009 indicating they had not received it back. The partnership said they had submitted a nil return as soon as they had received it, and indeed paper Self Assessment Returns had been submitted on behalf of the two partners also in April 2008.

The lead partner then requested a duplicate paper Return, which was eventually both received and completed in August 2009 also showing “nil” partnership income, but by which time a second penalty notice had been issued as the July deadline had passed.

There were telephone calls with HMRC and letters written to different offices which no doubt caused confusion. Anyway, the partnership appealed on the grounds that a Return had been submitted in April 2008 and HMRC should be able to find the original Return, even though the partnership could not find a copy.

A second First Tier Tribunal (referred from the Upper Tribunal) found that on the balance of probability the partnership had submitted the original Partnership Return in April 2008 since the Returns of the individual partners, with nil profits from the partnership, were submitted then. The appeals against the penalty notices were allowed.

What a waste of money with HMRC staff going to three tribunal hearings, when a little common sense would have saved everyone time and worry!

In Kathleen Lomas v HMRC TC 02010 the older lady taxpayer received a letter on 10^th January 2011 telling her that she needed to complete a Self assessment Tax Return for the year ended 5^th April 2010. She called HMRC and was sent a paper Tax Return which she sent back, duly completed on 17^th January 2011.  This Return was "captured" by HMRC's system on 27th January. The lady had an underpayment of £270.84 which she paid in March 2011, the day after she returned from abroad, having been away since 18^th January.

The lady had upon her return found a penalty notice because she had not submitted the Return on-line, the deadline for paper returns having been 31^st October 2010, two and a half months before she was sent the paper return for completion.

The taxpayer appealed against the penalty notice and the First Tier Tribunal found that HMRC had waived the requirement for e-filing by issuing a paper return in January. Again, common sense should have prevailed, and only did when the case reached the FTT. Judge Geraint Jones Q.C. said “The appellant is a lady who, it is accepted, has no blemish on her tax return or tax payment record over the last 40 years. There is no reason whatsoever to doubt her veracity.”

In neither case was there any great precedent being set. “Reasonable Excuse” allows HMRC to cancel penalty notices. Once upon a time, more junior staff of HMRC, or perhaps historically in the Inland Revenue, could exercise their discretion and cancel charges which seemed unreasonable. Since these cases went to the Tribunals, it seems that even very senior staff of HMRC have no power to make sensible decisions or they are incapable of doing so.

It does not inspire confidence in HMRC's ability to extract “the right amount of tax” from the taxpaying public whether errant or otherwise when they apparently show such incompetence in dealing with trivial matters and waste our resources at the same time. What do you think?

HMRC's review of Extra-Statutory Concession A19

Her Majesty's Revenue & Customs (HMRC) office, Wellington Place, Belfast, Northern Ireland, October 2010 (Photo credit: Wikipedia by Ardfern)

As you may know, HMRC is currently resisting all claims under Extra-Statutory Concession (ESC) A19, which for the uninitiated is a concessional treatment for taxpayers, usually unrepresented and who have not been required to submit tax returns, who find themselves with tax liabilities where PAYE codes have been issued incorrectly.

HMRC has issued a consultation document which is here. 

This is the response I am sending to HMRC. It is based on my own experience with no cribbing from anyone else.

Response begins:

5. Summary of Consultation Questions

Taxpayer responsibilities

5.1 Do you agree with the removal of 'reasonable belief' to be replaced with an objective test based around 'taxpayer responsibilities'?

No. Most taxpayers under PAYE are not tax specialists and have no need to employ agents since their affairs should be simple. Many claims under ESC A19 arise where individuals have two or more small occupational pensions. With modern software they are entitled to believe HMRC will get their tax liabilities right even if they have no concept of the automated system. A majority of such taxpayers will believe reasonably that their affairs are in order even if they are not.

HMRC responsibilities

5.2 Do you think that the introduction of HMRC responsibilities makes it clearer in regard to what information HMRC must act on? Has HMRC identified the correct responsibilities and/or are there others that should be included?

It is important that HMRC does take responsibility for taking action in relation to all information received and this should include all P14 and other end-of-year information. It is inexcusable that HMRC even resists currently claims under ESC A19 where it is clear they had relevant information as per Forms P14 received from employers and pension providers, which should have been deal with timeously.

'Exceptional Circumstances' test

5.3 Do you agree that the 'Exceptional Circumstances' section is now redundant and can be removed from ESC A19? If not, for what circumstances do you think it should be retained?

This question is slanted in itself. Low income taxpayers could endure serious hardship if information not properly used by HMRC involves notice of further liability less than 12 months after the relevant period or which had built up over two years.

Capital gains tax

5.4 Can you identify any issues with the removal of CGT from ESC A19? HMRC would be particularly interested to hear examples of where a recent request has been made in relation to CGT and ESC A19.

It is less likely that a claim would be necessary in relation to capital gains issues since most taxpayers should be aware of the tax.

Time limit for requesting HMRC looks at ESC A19

5.5 Do you agree with introducing a time limit for individuals to contact HMRC? Can you identify any issues with HMRC adopting this approach?

The time limit should be a fixed period of at least nine months after receiving Form P800, in the interest of fairness. To change the dates in HMRC's example:

“HMRC notifies Mrs Smith of an underpayment for the tax year 2015-16 by sending her a P800 Tax Calculation on 15^th March 2018. Mrs Smith considers it was HMRC’s failure to deal with information which led to the underpaid tax. Mrs Smith should contact HMRC: as soon as possible after receiving the P800, or, upon receiving her Tax Code Notice for 2018-19, but in any case, before 6 April 2018.”

This would leave Mrs Smith three weeks to notify HMRC of her claim, which would be unfair. Theoretically on HMRC's proposed change Mrs. Smith might have no real time to notify at all. Surely nine months is a fair and reasonable period to make a claim?

Other considerations

5.6 HMRC plans to issue supporting guidance alongside the revised wording. What format would be most appropriate for this? For example, online guidance, a Question and Answer document or updates in the PAYE Online Manual.

5.7 Are there any terms within the revised concession which you feel require further explanation or expansion?

On-line information should always be available, but a paper Question and Answer Document should be available for all taxpayers should they need it.

However HMRC has not demonstrated that there is any need to amend the current guidance on operation of ESC A19. Clearly the present Concession has been reinterpreted in HMRC's favour in the last two years with even very excellent and one would have thought irrefutable claims being denied, requiring taxpayers to make formal complaints.

HMRC should view the Concession not as a drain on Treasury revenue, but as it was formerly; to bring justice to taxpayers who can ill-afford late and unexpected tax demands when HMRC should have properly collected the tax at the time the relevant income was received.

End of response

I am very unhappy both about the proposed revision of ESC A19 and agree with Keith Gordon that there is no need for any change. If you have not done so already, please hurry to sign Keith's petition against the change. 

Related articles

• HMRC errors and the older taxpayer

HMRC errors and the older taxpayer

Post-modernism

Recently I was looking on-line for the first time at the record of a taxpayer who has been retired for thirty years. As one would expect, he isn't exactly in the first flush of youth, and although very much “on the ball” to the extent of doing his supermarket delivery order on-line, I don't expect him to be well up with our modern tax system.

Modern is a term I should use loosely. Of course I mean “current” in that the system creaks badly because HMRC relies too much on automation and their computer systems, and have extracted the human element too much or too early.

Mystery

My older taxpayer's record showed that he had had £1,500 tax coded out from his pension in 2011-12. That is quite a lot, and I could not see where this previous apparent underpayment of tax had arisen. The on-line details were not sufficiently specific.

We asked for an explanation from HMRC over the telephone, but the agent could not help and said he would arrange for a letter of explanation to be sent.

To HMRC's credit, that letter arrived within two weeks. However it explained that the underpayment of tax had arisen in 2005-06 but had been collected in 2008-09 so it hadn't needed to be collected again.

Goalpost shifting

All this is a bit worrying. In an era where HMRC wants to move the goalposts further than they have already done informally with regard to ESC A19 because they say they are better at end-of-year reconciliation of liabilities, I cannot see how they would have picked up this error from way back if someone like me hadn’t picked it up.

Crying foul

We expect HMRC to hold errant taxpayers to account. We expect them to collect “the right amount of tax” by which I mean the amount properly due under the law. Unfortunately we as taxpayers do not seem to be able to hold HMRC to account over their errors.

I am going to ask for interest on the refund due as a consequence over and above the generous 0% currently prescribed. I will be wasting my time no doubt, but my older pensioner has been deprived of a not inconsiderable amount of money over twelve months. He should be entitled to compensation, don't you think?

Sympathy for tax dodgers?

Would they steal from Sainsbury's? (Photo credit: Wikipedia)

The Daily Mail is not my favourite newspaper, but in view of its significant readership on and off-line, it must be one “the public” likes and therefore its readership is representative of “the public's “ views.

As I write this there is more faux outrage because the BBC had decided to save licence-payers money by avoiding paying Employer's NIC on the pay of many of its staff's remuneration by engaging them as contractors. Additionally they avoided falling foul of the considerable costs which would be incurred in having these people as employees, including pension schemes and paying them off when they were sacked; this as opposed to waiting for their service company contracts to lapse. Very sensible, I would have thought.

As we know, the BBC's practice in this regard is in line with many Government departments, local authorities and the NHS. We should all be upset if those bodies didn't do their best to save taxpayers' money.

Yet somehow the couple in this story of tax-dodging crooks in the same newspaper attracts sympathy from the commenters. You will not have time to read all the comments. It is hard to read very many without getting annoyed. A couple of classics are “at least they weren't scrounging benefit from the state as well as earning money” and “victim-less crime”.

For the record I think this pair of tax dodgers deserved everything they got, but judging from the comments I am in the minority in “the public”. Apparently it is not so bad to fiddle your taxes as it is to fiddle a claim for benefit. I suppose the person who thinks robbing the State of £85,000 is a victimless crime probably believes that it is the same as shoplifting at Sainsburys. After all, no one gets hurt so it must be all right.

Except of course people do get hurt. Honest taxpayers have to pay more because some are on the fiddle. Sainsburys' shareholders (including our pension funds) lose and customers have to pay more to subsidise the losses. Where is the difference? It is stealing. In both cases it amounts to stealing from you and me.

I suppose it is too much to suppose that the politicians quoted in the BBC story would have much grasp in understanding the issues before feeling free to comment, so at the other end of the spectrum I shouldn't expect the Daily Mail readership to grasp that most of them are being robbed by these market traders outside the system.

We are all being mugged by the fiddlers. I think tax avoidance (legal) is a question of personal morality for individuals and as long as they abide by the law it is up to them. I can have a view but accept it may not be the same as theirs. Tax evasion is breaking the law and I am sure we are all agreed it is immoral. Or are we?

HMRC tip-off hotline and catching the crooks

Grassing up

We are told that 74,000 calls were made to HMRC's tip off-line in 2011, reporting suspected tax evaders. That is apparently rather fewer calls than were made in 2010.

I would like to see all dishonest tax-dodgers caught. The so-called black economy consisting of people who offer to re-lay your drive or clean your house soffits and fascias for cash and all the other “cash-in-hand” people who knock on your door cost the country billions in lost tax. Dave Hartnett banged on about this, I remember. He was right in that respect.

Burst water mains

The tax leakage through dishonest tradespeople is very likely much larger than the (legal) avoidance by large corporates and the illegal VAT fraudsters though I am always very pleased when tax crooks are caught and sentenced. Even the driveway-laying tax evaders can apparently get large scale. 

Most of the 74,000 tip-offs will relate to small scale tax-evasion though in aggregate there will be a large amount of tax lost. That is tax stolen from honest taxpayers' back pockets, considering that the rest of us have to make up the deficit caused by the fiddlers.

Resources

What concerns me about the tip-off line is HMRC's resources to deal with the information received. They may have the profiling software, but the false and malicious allegations will need to be weeded out and then the others followed up. Logically, it would be easier to concentrate on the bigger fish because the potential tax recovery would be greater. With any investment in business, the yield is important because it means more profit, even when we are talking about HMRC. Apparently they lack resources even in that area.

HMRC have “task-force” campaign around specific types of businesses but it seems to me this is just nibbling around the edges. I think that, coupled with the profiling software, more well-trained and preferably experienced staff should be taken on. That is anathema to those on high who want to see further staff cuts in Government departments, but potentially the yield should justify the investment costs.

If HMRC want experienced tax people with noses for weeding out the crooks, maybe they should hire some tax practitioners from the private sector. I could make myself available on a part-time basis if I had a suitable offer (I mean it) but my point is that experience in real tax issues is what HMRC requires to sniff out smaller-scale tax evasion. Unfortunately with the cuts and early retirements, experience is what HMRC staff lack.