Wednesday, June 24, 2009



“Organisation Values – a broader relationship with customers … Broad principles such as treating customers courteously, dealing with their issues promptly, being fair and professional are covered under this heading”.

“H M Revenue & Customs … aim to make the tax … system feel easy to use. You can expect HMRC to … provide you with accurate information”.

“Don’t mess with us. We can destroy you. Even if you don’t owe us a penny we have the power to destroy you. And be under no illusion. Even if you don’t owe us a penny, we will destroy you if you choose not to co-operate with us”.

The first of the above quotes is from the June 2008 Consultation, “HMRC and the Taxpayer: A new Charter for HMRC and its customers”. The second is from the February 2009 Consultation, “HMRC Charter”. The third is from my imagination; I imagine that it is what someone said to Mr Cassells. I will come back to Mr Cassells later. I’d like to start with a hypothetical scenario.

Mr X does not believe that he owes any tax. He is a bit uptight that he is asked to complete tax returns because he thinks that he has had tax deducted at source under the construction industry scheme that exceed his tax liability. His income is low. He and his wife jointly own their house, which is worth in the region of £80,000 but is subject to a substantial mortgage. Mr X’s equity in the house is in the region of £26,500. That is his only significant asset. Indeed he is so uptight that he cannot be bothered to complete the tax returns that he has been sent.

After a few years HMRC work out that Mr X owes them tax of £4,533. They send him a demand. Because he does not believe that he owes anything, Mr X ignores it. HMRC make Mr X bankrupt.

This wakes Mr X up. He writes to HMRC and asks how they arrive at the £4,533. After a few months they say, “What a surprise. You don’t owe us £4,533 after all. We owe you £6,113” (or words that that effect).

Mr X is so uptight and so convinced that he owes nothing to HMRC, that he refuses to co-operate with the trustee in bankruptcy too; he sees him as brought in to do HMRC’s dirty work and he is not going to help him.

When HMRC tell Mr X that, although they lodged the petition on the basis of which he was made bankrupt, they made a mistake he applies to have his bankruptcy annulled. (I assume that they made a mistake; I am sure that if Mr X believed that HMRC owed him £4,533 and it turned out that he owed them £6,113, HMRC would say that he had clearly failed to take reasonable care in dealing with his tax affairs, but I also believe that in HMRC eyes failure to take reasonable care is a one-way street; HMRC staff always take care but being human can occasionally make mistakes). A judge hears the story and annuls the bankruptcy. All’s well that ends well. I like stories with happy endings.

I said earlier that I’d get back to Mr Cassells. Actually the above story is not hypothetical at all. Mr Cassells is Mr X. So what about the happy ending? HMRC are contrite, apologise profusely and compensate Mr Cassells for the hassle that their mistake has caused him?

Not a bit. Even if he owed nothing, Mr Cassells didn’t complete his tax returns. If people can get away with not doing what they are told to do by HMRC, however unreasonably it may seem (or even may be to them), what would the world come to? Other people may even start to think that parliament has given them rights and might challenge what they are told by HMRC. That would undermine the whole concept of HMRC expecting people to do as they are told. So HMRC – or, perhaps you and me as it is our money that HMRC paid out in legal fees – applied to have the annulment of Mr Cassells’ bankruptcy set aside.

Eventually Mr Cassells swallowed his pride and completed his outstanding tax returns. As a result HMRC calculated that they were wrong in thinking that they owed him money; he actually owed them £3,890. Oops! Another HMRC error. By the time the case came to court they accepted that he did not owe them a penny.

So why did HMRC pursue their application? Personally, I suspect that it was to teach Mr Cassells (and anyone else who is tempted to cross HMRC) a lesson. But that is obviously not what they told the judge. What they seem to have told the judge is that Mr Cassells had been threatening throughout to take action to prove that he didn’t owe them anything and he had been “all mouth and no action”. Accordingly they had been right to serve the petition. Having done so in error they have a responsibility to his other creditors (of roughly £5,000) as it had taken HMRC so long to work out what Mr Cassells did or didn’t owe them (assuming, that is, that their fourth try is right) that their debts would now be statute barred if Mr Cassells were to decide not to pay them and his bankruptcy were annulled. Furthermore, although if Mr Cassells had paid those debts at the beginning he would still have net assets of £21,500 (plus whatever HMRC might owe him), those creditors are entitled to interest and the trustee in bankruptcy has obviously incurred both his own fees and legal costs, which by now had amounted to £64,524. Accordingly as a direct result of HMRC’s actions he is now well and truly bankrupt even if he was not before.

“Yes”, said the judge, “I’ll cancel the annulment”! So that’s all right then. Result: Mr and Mr Cassells thrown out on the street. No tax collected (as none due). But, most importantly, HMRC have clearly established that anyone else who dares to challenge them needs to realise the extent to which HMRC are prepared to go to punish them.

A puzzling aspect of this case is why HMRC should have spent taxpayers’ money to appeal a matter in which they clearly had no interest. Indeed someone cannot simply initiate a court case, or I would have thought an appeal, simply because they feel like it. They need to have some standing that the court will accept gives them an interest in the case. I doubt that being upset because someone declined to co-operate with you is sufficient.

The answer lies in what is called equitable liability. In law Mr Cassells does owe tax even though in terms of arithmetic his tax deductions fully cover his liability. He owes the £4,533 that HMRC originally claimed and later accepted was an error. He owes it because HMRC assessed it on him and he did not appeal against the assessment. The reason that HMRC accepted that he now owes them nothing is the concept of equitable liability under which, where information received after the statutory deadline has passed shows that tax assessed is too high, they are prepared to make an administrative decision not to pursue recovery of the full amount assessed.

I wonder whether it is a coincidence that on 22 May, HMRC issued a statement saying that they intend to withdraw the concept of equitable liability from 1 April 2010.

I know nothing about Mr Cassells’ circumstances other than that he was a building industry sub-contractor, had little assets and used to live in an £80,000 house subject to a substantial mortgage, which the case report tells me. For all I know he may be a university graduate with a deep knowledge of the tax statutes. He may have deliberately not made tax returns, deliberately not applied to have his bankruptcy set aside the minute he was informed of it and deliberately refused to co-operate with his trustee in bankruptcy. It is, though, equally possible that he was a frightened little man with no knowledge of tax or of bankruptcy law who did not know what to do when the State claimed from him money that he knew he did not owe, who did not know that he could appeal against the bankruptcy order and was deeply upset that the State could strip him of his livelihood and his assets for no obvious reason whatsoever. If he has read Kafka’s “The Trial”, he will undoubtedly have empathised with Joseph K, whose nightmarish world seems to resemble that of Mr Cassells.

As a taxpayer I feel as angry about HMRC’s proposal to withdraw equitable liability as I do about the State’s treatment of Mr Cassells. HMRC say that equitable liability was introduced to protect other creditors in insolvency cases. But that is not the circumstance in which most of us have used it. In my experience, and I suspect that of TaxAid and LITRG, it is mainly used to avoid penalising those who are too frightened to open brown envelopes, who do not see HMRC as the friendly, loveable folk that HMRC wish to be perceived as, and who freeze at the very mention of the word “tax”. It provides a safety net for the vulnerable. It brings a touch of humanity and fairness into the tax system.

The powers review seems to me to have tipped the balance between HMRC powers and taxpayer rights, which the Inland Revenue strove hard to achieve when self-assessment was introduced, firmly towards enhancing HMRC powers and largely replacing taxpayer rights with taxpayer obligations to be enforced with an iron fist. I also notice that the draft HMRC Charter does not use the word “fair” at all, whereas that came right at the beginning of the original Inland Revenue Charter. Accordingly for HMRC to decide that there is no longer room for humanity and fairness in the Brown/Darling new tax world is perhaps not surprising. It is nevertheless very sad.

HMRC say that as under self-assessment from 1 April 2010, a taxpayer will have three years both to file a tax return and to displace a legal determination based on an estimated amount so it is no longer necessary for them to operate equitable liability. So does this mean that it is an obsolete concept as since 1996 taxpayers have had almost six years; that it has never been used since 1996? Of course not. Most of us have had instances where vulnerable people have come along with issues several years old because they have been too frightened to react to the bits of paper and it is only when the writ had been received or the bailiff had knocked on the door that they have realised that they had to do something.

I realise that the government is short of money and is probably pressuring HMRC to collect what is owed to it. However as a taxpayer I do not want the country’s financial problems to be alleviated by oppressing the most vulnerable members of society; by collecting money that is technically due from them but which to my mind it is morally offensive to society as a whole to exact; or by punishing for their inability to cope those who are bewildered by the tax system. I hope that I am not alone. I hope that someone in parliament can persuade Mr Darling either to keep equitable liability as a safety net for the vulnerable or, if he really believes that the House of Lords in Wilkinson meant him to withdraw such discretion from HMRC, to enact an equivalent power to enable them to continue to act fairly towards the vulnerable.

Robert Maas


Blogger Mr X said...


For Your Information

Mr Cassells has attempted to appeal this decision, but the legal aid refused to fund the appeal, I wonder if this was forced from the Governments hierarchy.

I would like to furnish you with the sworn affidavit of Mr Cassells, it highlights the exceptional traumatic events Mr Cassells was faced with during the time the HMRC were perusing him.

Briefly in 2001 he was subject to 2 floods of sewerage water causing £30,000 of damage to the property, whilst also destroying all relevant paperwork to enable him to file his returns, and a further flood in 2002 ( his neighbors were also effected by these floods they have in fact been flooded 11 times in 10 years ) based on these events and some other very traumatic events that the Affidavit will show, the district judge granted the rescission based upon the fact Mr Cassells had been faced with exceptional circumstances.

The High court took no notice of these exceptional circumstances, and neither did they apply any empathy to the fact.

Mr Cassells Solicitors and Barrister commented that in their opinion what had taken place was morally wrong.

How would I go about contacting you, any help would be gratefully appreciated and is urgently required.

MR X The Condemned.

1:51 pm  
Blogger equilia said...

This is a most unfortunate situation and I have found myself in the same boat.
I was aware of equitble liability, so I submitted my tax returns from 1997 to 2005 in 2008. When the Revenue would not agree. I appealed under Setion 32 TMA 1970 as permitted under that section which has no time limits.
To cut a long story short, the Revenue after pressure from me acceded to my request and reduced the tax and national insurance to the correct amount, taking allowances into account.
Out of the bottom of its heart, the Revenue agreed to grant relief on a concessionary basis, to nil after I had Appealed to the the Special Commisioners prior to the 31st March,2009 (for obvious reasons.
So although it will be heard eventually by the 2nd Tier Tribunal but under the transitionary rules (of the Special Commissioners Rules).

I will not bore you, Robert, with the details but hope remains even for the wicked (those who lack care of their affairs); if and only if; it is just and fair in a Judicial sense.

I must deal with my own little case first and then if successful might be able to assist Mr Cassels.

9:17 am  
Blogger anita said...

I don't believe what I have just been reading about Mr Cassells and the HMRC.In 1992 the then Inland Revenue were the instigators of my husband,s bankruptcy.We lost the matrimonial home and a farm tenancy.The Inland Revenue returned in excess of £9000 in overpaid tax.I am still fighting for justice and recently sent all of the information regarding this case to BBC Panorama /Programme Ideas.My local MP is assisting,if anything is to be done about HMRC those affected need to join forces.A'class action' against the HMRC would then be possible, then they would be forced to take note that perhaps what they are doing could be an infringement of The Human Rights Act!!!!!!!

6:37 am  
Blogger Mr X said...

Anita have you heard back from panorama i would be more than happy to contribute my story also

4:35 pm  
Blogger anita said...

Mr X
Sorry to miss your comment.Latest position is that Panorama did email
and I am sending further information.Harriett Baldwin MP will shortly have questions to ask on my bahalf.A wesite called BAIT is being designed to be used as a medium to send complaints to goverment.Only publicity and people power will win this one!Anita

6:25 am  
Blogger Mr X said...

This comment has been removed by the author.

8:34 am  
Blogger Mr X said...

I wish you all the best of luck Anita, If you do want to contact me I can be found at

It's totally unfair when the Government go out of their way to crucify people that actually pay their taxes.

Wouldn't you think it would be tax evaders that they focus on instead of the honest people like us that actually pay our taxes, then are rewarded by the HMRC by them staling everything else we own.

So much for the concept of justice, where the HMRC are concerned they are a Law unto themselves. the public are just the slaves of the HMRC and as such lose all entitlement to any legal or human rights !

8:38 am  
Blogger anita said...

Information now with Harriett Baldwin MP. so that she can ask questions on my behalf. Letter on its way from HMRC,in response to a letter I sent to them. Cannot wait.I know that I have to get as far as the Parliamentary Ombudsman.The question is whether there is a case against HMRC in relation to Human Rights, and whether there is enough support out there for a class action.Anita.

2:50 pm  
Blogger anita said...

If anyone else is out there who would like to join me I have now reached the 'top' of the HMRC ladder and also Mr M Hoban MP [Treasury] Anita

9:53 am  

Post a Comment

<< Home