The Chancellor's attack on landlords

In July 2015 Chancellor George Osborne announced the withdrawal of higher rate tax relief on mortgages of residential landlords. Those higher rate taxpayers with higher gearing in terms of finance have had their business models badly damaged or indeed destroyed as by 2020 they could be paying tax when actually suffering losses in real terms.  There have been a number of tax projections to prove this. At the very least, the returns on their investments will be very low.

If individuals own multiple properties, one cannot say that life is simple, and that people just lie back and enjoy the return of income. The reality is that there is considerable investment in time, plus worry concerning risk as few tenants are perfect and some are positively headaches. At the same time it is inevitable that repairs to properties must be made as and when needed, redecoration is necessary, and damage has to be repaired between tenancies.

The latest attack on residential landlords announced by Mr Osborne in November 2015 is a 3% addition levy of Stamp Duty Land Tax (SDLT) on property not purchased for the owner’s own permanent occupation. This takes effect in April 2016. This is probably intended as a deterrent to would-be landlords and those wishing to expand their portfolio. It is dressed as giving first-time buyers a chance to own. However it ignores the premise that everyone needs a place to live, whether owners or renters.

At the bottom end of the market, for example in the Southend area (I have to declare an interest), the small flats in town would not be the initial target of first-time buyers. The reality is that landlords are providing what amounts to social housing, and for their return on investment have considerable risk in terms of the types of tenant. 

In our own case the tenant of a flat downstairs from ours caused a fire with a Christmas candle. We lost our tenant of course as our flat was damaged, and incurred extra costs over the insurance recovery and legal requirements in paying for extra safeguards in case of another fire.

Then we took a tenant of the Southend Council homeless list, and within six weeks he trashed the flat and left, having turned on the shower tap and leaving the hose to pour water onto the floor. By the time we found out probably three days afterwards, the damage to our flat was considerable, it was uninhabitable for six months due to damp, and the refurbished downstairs flat we did not own was destroyed again.

We residential landlords take a risk, and frankly for the money there is no easy ride. Two years after the last event we are still carrying forward losses from that time; yet we feel that we are doing good by providing for a genuine need for our investment with what amounts to social housing. Yes of course we hope to make a capital profit one day. Why shouldn’t we, given the risks we have taken on?

Of course the country needs more houses, but George Osborne’s target of 400,000 by 2020 looks very inadequate to meet the requirement. Net migration to the UK in the year to June 2015 was 336,000 so in five years there might be another 1.5 million people. They are not all going to buy the houses that do not exist yet and will not in 2020. They are largely going to be renters. Where will they live? They need private residential landlords whether those with one or two properties, or fifteen.

If the Chancellor were honest about the new measures quite simply being tax-raising to fund the deficit rather dressing them as social engineering, we could understand to a degree why he had made these announcements. However, they will be damaging to the social fabric of society in ways that seem to have been overlooked, and amount to a very backward step in managing the housing crisis.

HMRC systems not joined up

Three months ago I registered a new client for Self Assessment as she had purchased a buy-to-let property which gave rise to a decent profit in 2014-15.

Two days ago she and I received a Form P800 reconciling her PAYE income and giving rise to a refund of over £800. This was on the same day my client had emailed her spreadsheet of lettings income and expenses.

I telephoned HMRC to suggest they did not send the tax refund as ultimately it would not be due to my client. I was told that it was already in the post, and as it turned out my client had the cheque today. We have agreed she will bank it and pay back the money under Self Assessment. We cannot trust HMRC not to lose the cheque if we sent it back, and anyway it would be months before they dealt with it.

I did ask the HMRC agent why they would make a refund on PAYE when they had been advised the client had another income source and had registered to do a Tax Return. Since the agent would not have the knowledge to be able to answer and because her command of English was poor, the question was effectively rhetorical.

The answer is probably that, as per usual, there is a lack of joined-up thinking going into HMRC systems and programming. Oh, it is all so frustrating.

Unintended consequences

One of my clients called me in a panic. She had received a "threatening notice" from HMRC saying that she would be fined £100 for not sending in her Tax Return. Actually, I submitted her return for 2014-15 on 11th May 2015.

Hers is always one of the first I do each year. Why? Because she is ninety-five years old and does not like anything hanging over her.

Obviously I was very puzzled about the threatening letter. It turns out this was her Notice to File a return. Normally one would expect these to be posted in April, but due to the HMRC contract with Royal Mail they are still trickling through; hence my client's was received on 1st July.

Not everyone can immediately understand that some letters from Officialdom are due to inefficiency and incompetence, and therefore some people take these letters seriously, especially vulnerable people.

Surely we can hope that next year all Notices to File are sent out in April and that taxpayers receiving them will not feel threatened? My ninety-five year-old was in a tail-spin and could scarcely catch her breath. Government contracts with Royal Mail should not cause such distress.

HMRC cannot do joined-up writing

As anyone who reads this blog will appreciate, I correspond regularly with HMRC. If I am dealing with an issue other than an enquiry into a taxpayer's affairs, when normally one officer will run the case, HMRC's correspondence is literally all over the place.

Not all issues can be dealt with over the telephone, because HMRC's Self Assessment call centre agents are limited in their power to help with anything beyond a PAYE Coding or a payment allocation etc.. If I have to make a complaint on behalf of a client or simply highlight some issue which HMRC are clearly getting wrong, I have to write. The trouble is that each time I write a letter on a particular issue, I get a reply from a different person in HMRC.

I believe that part of the difficulty must be a drive for “efficiency” in this new digital age. Most initial correspondence has to go to a PO box in Cardiff (you might get to write to a couple of other PO boxes when you get a reply) and I believe they scan and email my letter to some anonymous office who knows where. If I am lucky I get a reply within anything from a couple of weeks to three months. If I then respond my next letter might be scanned and sent to someone else to reply, perhaps someone in another part of the country.

Because HMRC officers are not trusted to think for themselves, or are not qualified to, many of the replies are obvious “paste jobs” from standard text. They do not consider the thrust or particular nuance of the letter to which they are replying, and of course the second and third people to respond in correspondence will not know what their predecessors were thinking when they wrote their letters.

It is no good trying to send a follow-up letter before I have had a reply to the previous one, because that will be emailed somewhere else, even if I attach a copy of the earlier letter.

Sometimes I have had two replies to the same letter within a few weeks. On a recent occasion, a more favourable decision was made in the second than in the first, which is fine and they have committed themselves.

There is no continuity in the system. No one sees correspondence through, and if they did it would be dealt with more quickly and efficiently. As I have mentioned before, one letter to me was typed and never sent to me by HMRC. Often, letters I receive from HMRC are unsigned, and I wonder whether the officer who drafted the letter has checked it, or if anyone has read it through in their absence, given that sometimes mistakes are only noticed in hard copy.

I suppose the problems are that there are insufficient technical staff of a decent standard within HMRC, and that digital technology had led to misguided senior managers believing that any of their officers can deal with correspondence without a case file, even a virtual one.

The current system wastes my time and your time if you are a tax professional, and it wastes HMRC's time and resources in not getting matters dealt with more quickly and efficiently.

It is another exasperating example proving Hutber's Law: “Improvement means deterioration”. What do you think?

HMRC and credit where credit's due – eventually

I am very pleased to report that HMRC have allowed my longest standing claim under ESC A19 after five letters, eighteen months, and just before going to the Adjudicator. My previous report on the case was here and I do think it only right to thank Keith Gordon for his campaign and in particular his article in Taxation in October 2012 which provided more ammunition for the fight.

Of course it should not have been a fight. Not all cases have the same merit, but given that my client visited HMRC after her husband's death specifically to make sure that her pensions would be taxed at source correctly, it should have been a simple matter for HMRC to agree to the claim. Of course they did not, but let us be fair and say that they saw the light at last, and be grateful.

In some ways the pleasure I get from this win is more than a case I had a while back when HMRC backed off in an enquiry from unreasonably demanding £250K plus from a client I had just taken on. It is a great feeling to see off an injustice.

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 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?

The public's double standards over tax avoidance and tax evasion

Outrage
To be in Britain in 2012 means that it is quite impossible to avoid strident headlines about wealthy and earning individuals avoiding tax by utilising schemes. The case of the comedian, Jimmy Carr, has attracted particular publicity and it has led to confusion among not only the public but also journalists as to the difference between avoidance and evasion of tax.

In case anyone here is still confused. “tax avoidance” means avoiding paying tax by perfectly legal means if often rather arcane and somewhat artificial. “Tax evasion” means failing to declare to HM Revenue & Customs income, gains or commodities or services which should be taxed according to the law. Therefore tax evasion is illegal.

Avoidance of doubt

I believe my position on tax avoidance is clear.  and I am aware of my own responsibilities as a provider of taxation advice.  However, may I spell it out a bit further? I do not recommend any tax avoidance scheme (a cunning plan devised by some specialist provider), and will not introduce my client to any arrangement which has any degree of artificiality. If one of my clients is approached by someone else then I will ensure she or he understands the risk and pain of close scrutiny by HMRC before making a decision.

I do not go as far as the politicians in saying that tax avoidance is morally wrong. In the case of large corporate entities, the duty of the directors is to their shareholders, and that means preserving as much of the pie as possible to feed those who have invested their money in the business and incidentally in the livelihoods of their employees. There is an awful lot of confusion and strident headlines from irresponsible or plain ignorant journalists about avoidance. Most recently I saw a large corporate which had been in the news over a tax avoidance issue being accused of further avoidance because it had made a real, not artificial loss, and therefore had no profit to tax.

I suppose in defence of journalists, many are being bombarded with material from so-called experts who may be campaigners with bees in their bonnets.

Morality
Really, in respect of money which is legally ours, the moral judgement as to its use is in our own hands. I may not respect someone who makes no contribution to society, but I will not set myself up publicly to pronounce on moral issues. I have known vastly wealthy and successful people who gave absolutely nothing to charity, and of course personally I thought they should. Many years ago I also knew a very famous person who gave a great deal of his money to charity in a very low-key way. I wish the public knew what a really good and decent person he was (and a very nice man anyway), but I don't think he would have wanted the public to know, quite apart from my being bound by confidentiality. My lips are sealed.

Of course I do help my clients to pay less tax by claiming every possible relief and arranging their affairs to pay less tax in a way “that Parliament intended”, which is a phrase becoming popular with tax judges.

Shady customers
The public is swept along by the media hysteria about avoidance and yet there is still so little about tax evasion. Tax evasion is illegal. Every time someone offers to re-felt your flat roof or re-surface your driveway with a really good discount for cash, that means they will probably not declare the income in their tax returns. Of course, being the dishonest fraudsters they are, that means that if you have a problem later, you probably won't be able to get them back to fix it.
Some of these driveway people actually don't believe in paying any tax at all and this lot robbed the Exchequer of over half a million pounds which is our money. If they don't pay their share, we honest taxpayers have to pay more. This dodgy plumber also got caught too.

Accessories to fraud?
As long as the public aids and abets fraudsters by paying them cash, everyone else loses out. It is likely that far more tax is lost to dishonest small traders than in respect of legal tax avoidance by a far smaller number of wealthy individuals.

In the end we can all do our share of ensuring that everyone pays their “fair share” of tax, and that means not parting with bank notes when a cheque or credit transfer or payment be card would normally be appropriate. Just because a few avoid tax legally is no excuse for assisting dishonest people to dodge tax, because they might as well be nicking that tenner from your back pocket.

HMRC loses the plot over ESC A19

HM Revenue and Customs seen from Parliament Square (Whitehall, London, England). Photographed by Adrian Pingstone in June 2005 and placed in the public domain. (Photo credit: Wikipedia)

The Concession

For those not familiar with Extra Statutory Concession A19, here is HMRC's own commentary on the subject. To quote the beginning:

“If you think that HM Revenue & Customs (HMRC) should have already collected the tax due in your Tax Calculation (P800) because the information had already been provided to it and HMRC have failed or delayed to use this information, then in some limited circumstances HMRC may agree not to collect it.

An 'Extra Statutory Concession' (ESC A19) allows HMRC to do this and it only applies to individual taxpayers who owe Income Tax and Capital Gains Tax. It does not apply in any other circumstances where amounts owing to HMRC are in dispute.

The circumstances are that HMRC should have used the information provided within 12 months after the end of the tax year in which it is received to notify the taxpayer of any arrears.”

As it says on the tin, the relief is concessional and therefore discretionary. So what am I complaining about?

Recent history

Back in the summer of 2010 HMRC had improved their software for finding overpayments and underpayments of tax mainly in respect of the majority of people taxed under PAYE who are not required to submit tax returns under Self Assessment. These differences covered a number of years generally from 2006-07 onwards though I believe there were an odd few from a year or so earlier.

If HMRC were not fairly quick in recovering what tax they thought they were owed, they would have been statute-barred from collecting it. So they set about sending out calculations of tax generally outstanding for the previous three or four years.

Many of the people caught out were pensioners with usually more than one occupational pension, though the pensions themselves are often quite modest. Obviously there was a furore and a campaign in the newspapers, many of which drew attention to ESC A19. Individuals with unexpected tax demands of often £5,000 - £6,000 made claims under ESC A19 and many, possibly most of the claims by pensioners in this situation were allowed. Great, and it seems only fair that people of modest income with almost none from savings (with such low interest rates) should not be landed with such an unexpected tax burden.

However, not all the underpayments of tax (yes, and some overpayments) were found in the first wave. HMRC have continued to run their program, many more differences have been found, and calculations sent to unsuspecting taxpayers including many more pensioners.

A sad tale

Consider the case of one lady, who following the death of her husband a few years back, actually visited an HMRC office back in the days when one could, and went through her income sources requesting that HMRC made sure her tax affairs would be in order. Four-and-a-half years later (at the end of 2011) she received a demand from HMRC for more than £6,000. Apparently she had been given allowances against more than one occupational pension.

She made a claim under ESC A19, which has been refused and her appeal turned down. Yet all pension providers must have advised HMRC by 19th May annually of the amounts paid to their pensioners in the previous tax year. Surely “HMRC... failed to use information received about a source of income, within 12 months after the end of the tax year in which the information is received” especially when you consider the lady visited HMRC's office back in 2007.

Yet HMRC says the lady fails the “reasonable belief” test. Presumably because the HMRC officer she saw in 2007 did nothing following her visit and did not type a note into the computer system, HMRC is prepared to call the lady a liar.

Patent unfairness

HMRC seems to be resisting every ESC A19 claim now. I suppose there has been an internal memo that to much tax was being lost or leaked because of the claims made.

Yes, we are dealing with a concession. Yet the current attitude of HMRC is patently unfair as I have no doubt that if the initial claim had been made in December 2010 rather than December 2011 it would have been allowed and the tax written off. It is hardly the lady's fault that HMRC took an extra year to re-calculate her tax liabilities and certainly not her fault that HMRC failed to act following her visiting their office in 2007 at her own initiative. Except, as I said, that they seem to be calling her a liar.

In my view it is patently unfair that almost identical claims made a year apart have been treated entirely differently. I have no doubt that back in 2010 some more extreme claims were allowed by mistake.

I do not think it unreasonable to expect that HMRC should be even-handed in dealing with similar cases where taxpayers really were entitled to believe that HMRC had all relevant information. Internal directives (yes, there must have been one) should not mean that one British taxpayer should be treated differently from another.

What is your experience?

Money Laundering checks and the criminal element

As a business defined as an “Accountancy Service Provider (ASP)” we are expected to check the IDs of new clients with regard to the Anti-Money Laundering Regulations (MLR), which we do diligently. We now have means of doing on-line checks, but I worry that there is such a racket in forged papers that even these on-line facilities might not be sufficiently rigorous, as an established ID of any longevity might pass even more sophisticated tests. 

Recently I received the following as a spam comment on one of my WordPress blogs:

 “Our team is a unique producer of quality fake documents. We offer only original high-quality fake passports, driver’s licenses, ID cards, stamps and other products for a number of countries like: USA, Australia, Belgium, Brazil, Canada, Italia, Finland, France, Germany, Israel, Mexico, Netherlands, South Africa, Spain, United Kingdom. This list is not full...”

There is a lot more but I have not quoted further because although I doubt they will sue me for breach of copyright, you already have the picture.

Nearly four years ago I met someone who said he was a national of a country bordering the Black Sea. He produced a passport which looked OK to me, and a utility bill in the same name with the address of the flat he was staying in and said that he rented. This guy wanted to register as self-employed, so I completed a 64-8 with the National Insurance number he provided. HMRC then registered a lady I had never heard of as a client of mine, because apparently this National Insurance number was hers.

I tried to check with my new client in case the number he provided was wrong, but I never heard from him again. I assume he had “done a runner”. I was quite relieved actually.

Of course as a good ASP I reported this incident to the relevant authorities and never heard a thing from them, and I told HMRC who apparently couldn’t have cared less.

I am all for using the MLR ID procedures with new clients because it is some sort of deterrent for dodgy characters, but as regards our being unpaid police, how are we to know just through document-checking just who some people are? I certainly did not spot what was probably a false passport. In reality I wouldn't know one if it slapped me round the face.

Experience might lead us to do further checks if we have doubts, but our role as unpaid police or UK Border Agency staff cannot be particularly effective, especially if our reports continue to be treated with such indifference.

Hartnett, HMRC and Hutber's Law

A non-resident's outlook

My sort of tax practice involves quite a lot of technical issues. It is not necessarily because I look for trouble, but because I specialise in certain more complicated areas of tax and people come to me because they are in trouble. That doesn't necessarily mean they are in trouble with HMRC (The Revenue), though they may be. It is quite often because they are having trouble dealing with HMRC because they cannot find anyone in HMRC who understands their problem, let alone is able to help them find a solution.

Recently I had an issue with a non-resident client whose pension suddenly started to be taxed because HMRC did not understand it was not taxable by reason of there being a Double Taxation Agreement in place. Some innocent in HMRC had issued a PAYE Code and decided that the client, who had no taxable income in UK should fill in a tax return. Persuading HMRC to leave the client alone took a lot of time, telephone calls and a tax return completed showing no taxable income. It really was the only way.

Last week, I had an issue with another client whom I believed to be non-resident by both past and current evolving standards. I wanted to telephone the HMRC Centre for Non-Residents as it is now called, which is in Liverpool. I could not find the number on HMRC's website. I called the general agent's number and was told that the only way for a non-resident or his or her agent to discuss that person's affairs was to call the public's HMRC call centre number.

Even then (this is hard to believe even for an old hack like me) apparently the Centre for Non-Residents does not take telephone calls. One has to ask to be referred to a technical officer who will call back and may be able to help.

Actually a technical officer did call me back, so this cost me only time (but time is money) as my telephone calls are all inclusive in the business package. However, to get through in the first place I had to go through an automated button pushing system, the first with three options and the second with six, so I had been on the line a while before I spoke to my first human. Suppose I has been a non-resident UK taxpayer by design or HMRC's default, calling from Tuvalu or Patagonia. How much would it have cost hanging on? Would a technical officer have phoned back anyway?

It is very difficult to pick up the telephone and be put through to anyone at HMRC who knows about tax rules. It would be almost impossible for a lay person to get through to the right tax official. Yet HMRC and Dave Hartnett like to call taxpayers “customers”.

Back in the Seventies, the late Patrick Hutber, City Editor of the Sunday Telegraph, stated his law “improvement means deterioration” referring to changes in services which large corporates said streamlined their services. One of those was not letting bank customers have back their cancelled cheques, still a source of irritation to me. Yet HMRC won't let their technical staff be contacted by the public. Indeed they now have only two addresses where one might write about a new issue which has cropped up and therefore there is no way of tracking where your letter might be until or unless you get a reply. That is no way to treat customers.

If Patrick Hutber were alive today he might, after re-stating his law, refer to an older one in the language of my aforementioned client who wrongly had tax deducted from her pension “Plus ça change (plus c'est la même chose)”. The more things change, the more they stay the same.

Fat cats and gutter rats

The other week my wife and I were in our front garden when a man probably in his fifties came up to us. He said that about three years ago he had washed and scrubbed the soffits and fascias on our house and cleaned out the gutters. I didn't remember him, but my wife did for it was she that had commissioned him to do this when he had visited previously.

This prospecting soffit cleaner (Let's call him Stan Soffit) offered to “do” our house again for £140 while pushing a business card into my hand. I pulled a face because that seemed an excessive hourly rate for the job. The conversation continued:

Stan “OK, mate, I'll do it for £90 cash”

Me (pulling another face) “Actually, I am a tax adviser”

Stan “OK mate, no offence.” (Snatches business card out of my hand) “You won't be needing that then”

Stan the scrubber then turned and trotted to his van, and drove to the next turning to turn round as we live in a cul-de-sac. Coming past again he slowed down and yelled “No offence mate, eh?” before disappearing without prospecting the other twenty odd houses in our road.

Actually I was rather offended. People like him give small businesses a bad name. They are also effectively taking money out of all our back pockets because if they don't pay tax on their earnings, everyone else has to pay more.

Dave Hartnett, Permanent Secretary for Tax (a post he invented himself really) and therefore head of HMRC believes that the small business population makes up a sizeable portion of the tax gap and he may well be right. He thinks that maybe the Chinese idea of a turnover tax would be an effective way of collecting revenue. Of course this would not catch characters who never declare their income anyway. Dave must think that everyone is fiddling their expenses. I think that is a very misguided idea. The big problem is not with businesses submitting fraudulent expense records with their accounts and tax returns. It is with those who don't declare some or all their earnings like our friend Stan (well, no friend of mine).

HMRC keeps coming up with plans for favourable treatment for dentists, plumbers and tutors who have undeclared income. What they need is some joined up thinking to catch those working in the black economy who are evading hundreds of millions of pounds of tax.

Of course it doesn’t make such good headlines as chasing billionaires and multi-millionaires with their tax schemes and tax havens. Campaigners such as Tax Research UK wouldn't get their media interviews out of drive tarmac cowboys or Stan Soffit. HMRC likes the fat cat headlines too because it makes them feel legitimate, but they are failing badly at catching the possibly million-plus small-time tax fiddlers very likely costing the Exchequer more in lost tax.

A turnover tax would be bonkers anyway. I guess it would just in effect be an extension of VAT for service providers maybe with a flat rate, but what about retailers who have high turnovers but lowish margins? It would all be unworkable, often unfair, and would miss the targets.

Having been in my business a long time I get a feeling about everyone I meet in business and indeed also in a private capacity. Darren, our window cleaner, says he will clean our soffits, fascias and gutters for £90, a figure he quoted without knowing what Stan had said. I like Darren too. He is happy to take a cheque; a good sign.

As part of my business I help tax defaulters, which means those who have not made tax returns or who have made incorrect tax returns, to come out and pay their dues. For all those who have either been caught or, as happens quite often, get a fit of conscience, there are so many below HMRC's radar.

Never mind the fat cats. Let's round up the rats robbing us in our gutters.

Representing the sinners

Image via WikipediaPart of my work as a tax practitioner is to represent those who for one reason or another have not declared their income properly. Sometimes they have not declared their capital gains either. Sooner or later they need help from someone like me.

There are all sorts of reasons why people find themselves outside the tax system. I have certainly heard some tales. I can however see certain trends in the way my new clients might have fallen outside the system.

The innocent

Some individuals do start out in innocence in that they may start a very small business for “pin money” which would be well below the level of income tax or National Insurance. Their business might then take off, they think they ought to have told HM Revenue & Customs before, and they become afraid to do so for fear of retribution. Thus they go on outside the system for several years. At some point they are either caught by HMRC or (as I much prefer) they approach me for help because they simply want to come clean and meet their obligations to the Exchequer. I love people with a real conscience!

The oblivious

Strangely there are some who really never dream that they could possible be liable to tax. These are more commonly those who receive some sort of investment income upon which they “assume”, if they had thought about it at all, that the tax is already paid. Other people in this category may include those in receipt of rents on their property. Yes, there really are some extremely naïve types who have no idea that the Government might want its share of their income.

The not so innocent

This category really knows that they should be paying tax. They just like to live on the edge and take the risk of being caught, but somehow they do not expect to be. They may have earnings or have let property.

The net tightens

It is a popular belief amongst both the public and some accountancy and tax professionals that HMRC does not have the resources to catch tax evaders, and especially small time ones. They think that HMRC prefers to concentrate on the big fish amongst the dodgers by going after the miscreants who have substantial funds in Swiss bank accounts. They believe that the Liechtenstein Disclosure Facility represents the main type of evasion mainly being targeted.

HMRC have other strings to their bow. For example they have been checking the Land Registry and have been finding not only undeclared capital gains realised by property investors, but also significant undeclared rents from such properties. Judging from instructions I have received from new clients who have been found out, this is a very successful initiative.

All are welcome

Helping new clients who want to come out of the woodwork and into the system is very pleasing, and I am happy to assist those who have been nabbed by HMRC too. I don't judge people and in the end they all need help.

The variety of work is hugely satisfying, and once we have established that there is absolutely nothing else which has been forgotten in the way of income or gains, I can get a fair deal.

Of course I don't like tax evasion because dodging obligations to the Exchequer is much the same as taking the money out of our own back pockets. For the small timers, though, whether innocent, oblivious or a bit guilty, HMRC mainly wants them in the system rather than bankrupting them or hanging them at Tyburn Tree. In the end it is better to cough up some money and have someone like me represent them, because afterwards there will be no more looking over their shoulders.

You CAN talk to real people at HMRC

Image via WikipediaJanuary is not my favourite month from the perspective of Self Assessment Tax Returns, though fortunately I avoid maximum stress by not taking on every last-minute prospect, giving my procrastinator clients an early “last warning” and not doing hundreds of tax returns anyway.

The biggest problem in January concerning Self Assessment is in speaking to HMRC employees in call centres who know only what is on their screens, are unable to make decisions on specific requests, don't necessarily have the information we want or are not authorised to give it.

Contrast this. I had occasion to call a Corporation Tax Office this week. The officer was helpful, we did not have a pointless barrage of security questions, she was exceedingly helpful and she changed the tax return periods while we spoke just as I asked. She was maybe a little brusque with a rougher telephone manner than one would get from the call centres, but she did the job and left me feeling happy. Above all, she did not waste my time but helped me solve a problem.

It may sound trivial but it proves to me again that organisations get better results and are more efficient if they empower their employees. I wish this ethos were prevalent throughout the leviathan that is HMRC.

What is your experience?

Tax enquiry frustration

HMRC's job is to collect tax and to recover it where income has not been properly declared. These days, because of the Gordon Brown's “cuts” many HMRC staff are frankly not of the standard they used to be or are actually prevented from thinking for themselves. The current standard may be simply due to lack of training rather than ability. As a consequence they seem to be doing everything by rote.

A typical example is a discovery of some undeclared bank interest. HMRC writes to my firm and to the client. We check what has happened and there is indeed some undeclared interest but the bank actually provided incorrect information to the client and to me at the time the Tax Return was prepared. We write with the correct information and explain that it was all entirely the bank's fault.

HMRC person then writes to us and asks us to explain the omission, which we already have. It is as though no one has read our letter properly. We write back referring to the previous letter and repeating the perfectly reasonable explanation.

HMRC then writes requesting payment of a penalty for carelessness in addition to the tax which is obviously due. Now, there may be technicalities which would allow HMRC to call an innocent mistake, due to a bank's failure to deliver the correct information, careless. However, in any reasonable sense no one has been careless except the bank, which gave its customer the wrong information and HMRC the correct figures.

Once upon a time a Revenue Inspector could apply his or her judgment to any issue and act with a little discretion based on common sense. Now it is a question of sending letters one, two and three quite literally by the book and no matter the circumstances.

I hope letter four will not be in the book because we have written a strong response to HMRC's last effort. Of course they have on their side that it is not always cost effective for the client to resist too much, but then again I may just be in a pro bono mood.