Wednesday, April 15, 2009



As they tilt the balance in the tax system further and further towards maximising tax yield and away from rights for taxpayers, the government often claim that the tax system needs to be fair as between taxpayers.

It is unlikely that anyone will disagree with that objective, although many would disagree both that the UK tax system is apt to achieve it and that the government’s concept of fairness coincides with most people’s perception of what that word means.

I am prompted to this thought by the Special Commissioners decision in HMRC v Wilson (Sp C 724).

Mr Wilson sent HMRC his tax return for 2004/05. It appears that he also provided HMRC with some additional information in the space provided on the return to do so. The return showed a CGT loss of £2million. HMRC, presumably, considered the return and having done so decided not to open an enquiry.

So far so good. Mr Wilson did all that he was required to do by the law. The law provides that when HMRC receive a timely-filed tax return they have a period of between one and two years (depending on the date of filing) in which to enquire into it. I suspect that, faced with a tax return showing a £2million loss, most people would either have enquired into the return or would have looked at the additional information provided with the return and been satisfied that the loss was properly allowable. After all one would imagine that the reason why the system requires losses to be declared and enquired into when they are suffered, not at a subsequent time when the taxpayer seeks to utilise them, is that at that stage the necessary information should be readily available, albeit that this is potentially unfair to taxpayers who suffer such a large loss that at that stage they cannot finance the cost of engaging professional help to quantify the loss.

It appears that about a year after the enquiry window for Mr Wilson’s 2004/05 tax return closed HMRC decided to look into it. I believe that it is HMRC’s policy to destroy taxpayer files after six years. Clearly they ought not to have destroyed Mr Wilson’s tax return a mere two years after he submitted it. Indeed, I doubt that they did. They seem to have simply mislaid it.

Having either ignored the statutory enquiry window or the HMRC Officer who had reviewed the return having been satisfied, HMRC decided to look into the loss with a view to considering whether they should make a “discovery”. They asked Mr Wilson for a copy of his return. He refused. That is obviously unhelpful, but I suspect that Mr Wilson is not alone in believing that he should not have to provide the same information twice to HMRC, particularly if he thought that the reason they wanted it again was because they wanted to enquire into a matter that they had either already been satisfied about or had decided not to enquire into during the period in which parliament had decided that enquiries should be carried out.

HMRC issued a TMA 1970, s 20 notice for the copy of the return and, when this was not complied with, imposed a £300 penalty on Mr Wilson. He appealed against this.

When the appeal was heard by the Special Commissioners, HMRC explained that they had entered onto their computer the figures on the return “but the additional comments box was not copied”. I suspect that it was not even read, but HMRC do not appear to have admitted that! Surely that is not Mr Wilson’s fault! Why should HMRC be able to specifically ask for information, ignore it when it is provided, and then come along two or three years later and ask for it to be provided again? There is no statutory requirement to keep a copy of one’s tax return. Surely a taxpayer ought to be entitled to assume that once he sends something to HMRC they will deal with it sensibly!

Apparently not. The Special Commissioner agreed with HMRC that the return contains “information relevant to … any tax liability to which [the defendant] is or may be subject”. Accordingly it can be required to be provided again. The legislation does not impose any obligations on HMRC. Apparently if they were to mischievously decide to destroy your tax return and then ask you to submit it again the law will back them up. I am not of course suggesting that they are likely to do this. I am however suggesting that in a fair system a taxpayer should be entitled only to have to provide information once, and should not be expected to act as an adjunct to HMRC’s filing systems and retain information just in case they decide to ignore it when it is submitted to them, on the basis that the taxpayer is obliged to provide it for a second time should they later change their minds.

Incidentally, it never fails to amaze me how impervious HMRC seem to embarrassment. They seem to cheerfully tell the Commissioners or the courts time and time again that they have lost something or didn’t read it properly or dealt with it inefficiently in some other way. I suppose that in a way it is commendable that they strive to obtain the last penny of tax, even if doing so requires them to highlight to the world their own shortcomings. Or perhaps it is simply that camaraderie within HMRC is such that Officer B is gleefully willing to highlight Officer A’s shortcomings!



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