Friday, April 23, 2010



I pose this question after reading the decision of the Court of Appeal in R (on the application of Valentines Homes & Construction Ltd) v HMRC.

Valentine has two directors, Mr & Mrs Brooke. On 28 May 2007 Mr Brooke sustained a serious head injury while in Spain. He needed brain surgery and was detained in hospital for several weeks. At the time Mrs Brooke, who was pregnant, was juggling between tending to her husband and looking after their three children. As a result of those personal problems the company failed to pay over its PAYE for the period May to August 2007.

Where an employer does not pay over PAYE by the due date HMRC have power to guess the amount due and serve a notice on the employer to pay that amount within 7 days. The amount so guessed is deemed to be PAYE due by the employer unless during the 7-day period the employer either tells HMRC the true amount due or demonstrates that nothing is due. HMRC guessed £83,697 in two stages, on 2 July and 10 September 2007. Mrs Brooke, for understandable reasons, did not supply the correct figure by 9 July and she never received the September guess. The amount of £83,697 was accordingly technically payable.

On 9 October 2007 HMRC instituted County Court proceedings to recover it. The company served a defence admitting that it owed £60,613 and explaining that Mr Brooke was “injured, hospitalised and not fully functioning for a period of months”.

HMRC responded that the company had had seven days to give it the correct figure and “as you did not, my estimate is legally due and payable”. It added that “Mr Brooke’s period of incapacity is not relevant to my claim”. Finally it said that if the company paid the tax it believed to be due it would be accepted without prejudice and HMRC would still go to the County Court for the difference of £23,000 odd between their guess and the tax actually deductible under PAYE.

I am fairly familiar with the tax legislation. I cannot find anything that says that HMRC are not allowed to be compassionate or, indeed, that they cannot use commonsense. Personally I do not want the sort of tax authority that in effect says, “While you were seriously ill we initiated a procedure that results in the company owing £83,697. It is our good luck that at the time you were too ill to respond to it. You now owe us £23,000 more than parliament intended you to pay. We don’t care how ill you were at the time. Mrs Brooke wasn’t ill; she was simply nursing you, looking after your three children and coping with the stress of pregnancy. The children would not have died if she had abandoned them for a couple of days to work out the tax due. She chose to put the welfare of her family before her duty to ensure that the company pays its PAYE. No reasonable person would do that”.

Is that the sort of tax authority you want?

The case got to the Court of Appeal because on 13 May 2008 the company sought judicial review of HMRC’s decision to go to the County Court. In the interim the company’s accountants had worked out that the tax actually due was £64,888 and had told HMRC this on 11 December 2007. HMRC ignored that letter. In March 2008 they obtained a County Court hearing date and on 21 April 2008 wrote explaining that they were disinterested in the accountants’ figures, i.e. the facts, as by law the amount due was the amount HMRC had guessed. On 2 May 2008 the accountants expressed concern about HMRC’s “zealous desire to pursue an incorrect debt in court rather than attempt to accept evidence”. On 9 May the company paid the tax and interest that it believed to be due. On 13 May the company made its application for judicial review, together with an application for a stay of proceedings in the County Court. At the County Court hearing on 14 May, HMRC’s claim was adjourned to 16 June when the application for the stay would also be heard. A few days before that hearing, on 10 June 2008, HMRC agreed to accept that £64,888 plus interest that the company had paid on condition that the company withdraw its judicial review application, pay the costs of HMRC’s original claim of £630 and pay its own costs. HMRC confirmed that “any additional costs claim by HMRC will be met by us”. The company agreed to pay the £630 and wrote to the County Court withdrawing its application for a stay.

Is that the sort of tax authority you want? One that gleefully puts a pregnant woman under the stress of believing that they intend to collect tax in excess of that decreed by parliament and then at the latest possible date, just before the Court hearing, say that they don’t intend to do so after all. It is not the sort that I want.

The company did not withdraw or agree to withdraw its judicial review application. Indeed it asked HMRC to pay the costs of £10,549 that it had incurred in relation to the judicial review. The High Court granted the judicial review application. However HMRC then pointed out to the Court that while notice had been served on a senior official within HMRC the Court rules required it to be served on the Solicitor to HMRC (a different senior HMRC official). The Court thereupon set aside the permission. HMRC also used that as an excuse to soundly reject the company’s claim for the costs of the judicial review. “Please note that as the original application was not properly served on this office we will not entertain your request for costs”.

Is that the sort of tax authority that you want? One that seeks to avoid payment of a reasonable claim by taking technical legal points rather than approaching the claim on its merits – and in order to do so seems happy to wash in public what seems to be very dirty linen indeed. As both a citizen and a taxpayer, it is not the sort of tax authority that I want.

On 10 February 2009 the High Court refused permission for judicial review on the grounds that the matter had become academic following the settlement of the County Court proceedings. It ordered the company to pay HMRC £500 in respect of costs as it was not justified in pursuing the application. The appeal to the Court of Appeal was against the decision on costs. Happily the Court of Appeal set aside the order for the company to pay the £500 and instead ordered HMRC to pay the company £6,000. Ironically, the court arrived at that figure by guesswork! It felt that the company had not provided it with sufficient details of the costs to enable it to assess what sum was actually appropriate.



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