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?

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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Doing the decent thing

Sometimes in my line of work we have to lift our heads from what we are doing and take a step back. Are we really doing the right thing? Today I was asked to quote for dealing with the accounts and tax return of what purported to be a business. The owner was concerned at the level of fee he was paying his present accountant for the preparation of the annual accounts and tax returns.

Having had a look at the work involved, I quoted a fee that was apparently much the same as the amount charged by the present adviser. In a sense I was pleased that my nose for what was fair was in line with the market. My USP is that I give more for the money in terms of value, because not only do I carry out the compliance at a fair price, but I am always available to clients on the telephone, giving proactive advice and help my clients be more efficient.

In this case I was concerned that I was being asked to quote for a low turnover business which consistently makes losses and has done for years. There was no other income available against which to set off the losses, for reasons I will not go into. HMRC, if they would ever think about it, would say that this was not a true business but a hobby, and that the losses should not be tax deductible elsewhere.

I said to my prospect that I thought the “business” really was a hobby, and that it would save a great deal in accountancy and tax compliance costs if the present agents were to ask HMRC to agree that the activity was a loss-making hobby and that tax returns and accounts would not be required in the future. Of course I gave away the chance to bid for the work, and probably the present incumbent will lose the business, but I think they should have given it up anyway rather than churning through a pointless process for a regular annual income. I am not saying they were unethical; just not thinking about what they were doing. What do you think?

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