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. 

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