Monday, October 12, 2015


BLOG 166


It is some time since I have written about a Tax Tribunal case where HMRC have acted so outrageously that I cannot understand how they had the cheek to take the case before the Tribunal.  I had hoped that all the public talk by politicians about fairness and reasonableness had at last sunk in.  But apparently not.

Mr Jaynes attended a HMRC self-assessment education session.  However when he came to complete his tax return, he had forgotten some of what he had been told and phoned HMRC for help.  They suggested he make an appointment at the Leicester tax office, which he duly did.

Mr Jaynes and his wife turned up at the tax office with a one-page summary of income, an excel spreadsheet of the whole year’s trading in both printed and electronic forms, and all documentation including invoices and bank statements.  The HMRC Officer he spoke to looked at the documents, asked some questions which Mr & Mrs Jaynes answered, filled in their 2010/11 tax returns by hand himself and asked Mr & Mrs Jaynes to sign the returns, which they duly did.

Mr Jaynes only went to the tax office for help with some questions.  He did not ask the Officer to complete his tax returns for him.  The Officer offered to do this.

So far, so good.  I applaud the Officer.  HMRC are constantly telling taxpayers to turn to them for help.  I think the Officer went beyond the call of duty in his eagerness to assist a confused taxpayer.  I congratulate HMRC for having employed such a caring person.  I only wish that this sort of thing happened more often.  Last time I suggested to a former client who had fallen on hard times and could no longer afford to pay me to prepare his accounts, that he should ask his local tax office for help, he was firmly rebuffed.  “We are not accountants, go away, we can’t help you”.

Unfortunately, HMRC do not share my sentiments.  Apparently helping taxpayers as this unnamed Officer did is against HMRC policy.  So what, you might be thinking.  Rules are made to be broken in appropriate circumstances.  HMRC’s policy of helping taxpayers ought to take precedence over HMRC’s policy of not helping them to complete their tax returns. 

What’s the point of all this?  Well unfortunately the Officer completed the return wrongly.  Mr and Mrs Jaynes traded in partnership and the Officer had shown the whole of the profit on Mr Jaynes’ return and against it had set £13,235 of brought forward losses.  Unfortunately the 2009/10 losses had been shown on Mrs Jaynes’ tax return, not her husband’s and had been utilised against other income of hers.  Accordingly the deduction for brought forward losses in Mr Jaynes’ tax return was incorrect.

HMRC discovered the mistake, but not until after the self-assessment enquiry window had closed.  They sought to make a “discovery”, which is an alternative means of assessing unpaid tax.  However they can raise a discovery assessment only in limited circumstances.  In particular they can do so in a self-assessment case only if the taxpayer acted carelessly or if at the time the discovery window close, HMRC could not have been aware from information contained in the taxpayer’s tax return or that for the two previous years, of the error.  The error would clearly have been apparent if an Officer had looked at Mr Jaynes’ 2009/10 and 2010/11 tax returns side by side.  Accordingly they would need to show that Mr Jaynes had not taken reasonable case when he signed his 2010/11 tax return.

Let’s jog back to what happened.  Mr Jaynes asked HMRC to explain again how to complete his tax return.  HMRC said, “Give it here, I’ll do it for you” or something similar.  HMRC filled in his tax return and Mr Jaynes signed it.  HMRC did not dispute that that is what had happened.

What they told the Tribunal is that Mr Jaynes signed the return as being correct to the best of his knowledge and belief.  As it was not correct, he could not have taken reasonable care in completing it.  The Tribunal was unconvinced.  “We do not believe that Mr Jaynes was careless.  He took the best route he knew of to make an accurate tax return.  It is not contended that he was careless with any of the records he brought to HMRC.  It is not contended that they were, for example, inaccurate or incomplete.  We believe that it would not be sensible, as a matter of public policy, to require taxpayers to be suspicious when dealing with HMRC.  If a service is offered, and nothing else alerts a taxpayer to the fact this may not be an official service, a taxpayer should not be required to enquire whether it is offered legitimately”.

HMRC’s next argument was that if a taxpayer relies on someone else to complete his tax return on his behalf, the taxpayer still bears the responsibility for getting the return right.  In other words, HMRC’s view seems to be that if you rely on advice from HMRC and they get it wrong, it is your fault; you should have chosen someone more competent than HMRC to give you the advice.  Personally, bearing in mind the quality of some of the advice I have seen coming out of HMRC, I have a degree of sympathy with the apparent HMRC view that it is dangerous to rely on HMRC’s help, but I think it very improbable that that is what Parliament intended when it enacted the legislation.

But the Tribunal did not have to consider what Parliament intended.  It said that it does not believe that an employee of HMRC can act on behalf of another person in a transaction with HMRC.  It also said that the Officer did not in fact act on behalf of Mr Jaynes because Mr Jaynes viewed this as “a service offered by HMRC”, rather than “a service offered by this particular person”.  “This was all the more reasonable a belief because this Officer had offered this service in the past … and because the same service had been offered by a different HMRC Officer in the same office previously”.

Why did HMRC take this case?  I wish I knew.  The tax at stake was only £3,551 and the appeal hearing will probably have cost HMRC more than that in staff time – staff time that could instead have been used to improve the appalling service standards that HMRC is currently struggling with.

I suspect that HMRC would say that they have a duty to collect the correct amount of tax that is due.  If they come across an underpayment, they have no power to ignore it.  But, if so, that is not right.  The House of Lords in R (on the application of Wilkinson) v HMRC said that HMRC “have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to the staff available to them and the cost of collection”.

It is highly improbable that they can believe that overall they can obtain that highest return by exposing their staff to public ridicule, by alienating the general body of taxpayers by seeking to distance themselves from the actions of their own staff, or by giving the public the impression that they will pursue tiny amounts of tax to the ninth degree, irrespective of how unreasonable it may appear to do so.  Both the Treasury and HMRC constantly talk about fairness in tax.  Fairness is surely not simply about refraining from doing things that one is entitled to do but is likely to be perceived as unreasonable.  It is also about doing the right thing in circumstances where fault lies with HMRC.  It ill behaves HMRC to talk of fairness if they are not prepared to treat others fairly too.

I think the real answer is that HMRC choose to exercise little, if any, control on what cases are taken to the Tribunal.  They may think it easier to deal with the PR flak when it comes than to head it off by thinking of the effect on their reputation before an appeal goes to the Tribunal.  The opprobrium on HMRC in Mr Jaynes’ case would have been no less had HMRC won.  It is a case they simply should never have taken.  HMRC need a system to ensure that similar cases are not taken again.