Wednesday, May 18, 2016


BLOG 173


There is a well-known maxim that ignorance of the law is no excuse.  So if a person files his tax return, he should know that he owes tax and pay it.

But what if HMRC tell him that he doesn’t owe anything?  Apparently being misled by HMRC is no excuse either!

I should say immediately that I have little sympathy for Mr Halford.  However it is difficult enough for the average person to understand the tax system, so if HMRC deliberately mislead taxpayers, it does not seem reasonable for HMRC to say that he is liable for a penalty because he should have known the law and accordingly should have known that what HMRC told him was incorrect.  Mr Halford seems to have admitted that he knew he owed the money, which is why I am unsympathetic.

However his tax case (Halford v HMRC, TC 050 48) still worries me.

Mr Halford submitted his tax return online on 30 January 2015.  He received an acknowledgement that his return had been received.  He logged out.  He then logged back into his online account again.  This displayed a message that he “had no amount to pay”.  He did not log back on again on 31 January, the last day for timeous payment of the tax.  However it appears from the decision that, had he done so, he would have received the same message.

HMRC told the Tribunal that this message would have remained until they processed Mr Halford’s tax return, which they did on 9 February.  The inference is that if he had logged on to HMRC’s website every day, he would have learned on day 10 the amount that he owed HMRC.

I tend to submit my tax returns on 31 January.  HMRC provide me with a tax calculation and I pay the amount shown on this as due.  However that is not necessarily the amount that I owe HMRC.  They make odd charges, such as interest, to my account from time to time and do not tell me about them.  I do not normally worry unduly because the differences get sorted out when I make the July payment as by that time HMRC can tell me what I owe.  Furthermore, my January tax payment includes a payment on account for the current year which gives a cushion to ensure that I have paid all the tax due for the previous year by 31 January.  Mr Halford was not in this position though.

Mr Halford told the Tribunal that he knew that the message related only to 30 January.  But by 31 January the tax shown on his return would have become payable yet, apparently, his tax account would still have shown nothing as due because HMRC had still not processed his tax return.  That seems to me unreasonable.

Making Tax Digital enhances the importance of a person’s tax account.  Leaving aside whether or not the proposal is actually workable (we have now been told that the consultation on what the government actually want to do won’t arrive until July, so this is paying lip-service to proper consultation if they really want it up and running be next April), if the figures shown on the tax account cannot be real-time figures, chaos seems inevitable.

Not everything is weighted in HMRC’s favour though.  They have recently lost a Tribunal case, Mabbutt v HMRC because of a typing error!  On 17 July 2011, they purported to open an enquiry into Mr Mabbutt’s tax return for the year to 5 April 2009.  Unfortunately their letter accidentally referred to his return for “the year ended 6 April 2009” instead.  On 24 March 2011 (when it was too late for HMRC to open an enquiry), his accountant told HMRC that they had not received a notice of enquiry into the return for the year to 5 April 2009 and asked them to confirm that they were out of time to open an enquiry for that year.  They acknowledged receipt of the letter of 17 January, but pointed out that “this does not refer to the tax year ended 5 April 2009”.  HMRC responded, “I can confirm that my letter dated 17 January 2011 was a valid notice under s 9(a), TMA 1970”.

The Appeals Tribunal accepted that the reference to s 9(a) (i.e. subsection (a) of s 9) rather than to s 9A did not matter as it was obvious what HMRC meant.  However it held that it was a fundamental requirement of an enquiry notice that it should refer to the correct year and that, as there was no way that a reference to the year ended 6 April 2009 could be construed as relating to the tax year to 5 April 2009, this error was not capable of being ignored even if it was obvious what HMRC meant.  Accordingly the enquiry notice was invalid and, by the time of the Tribunal hearing on 26 January 2016, it was too late for HMRC to raise a discovery assessment for 2008/09.

Are you pleased to see HMRC get their come-uppance?  I am – or at least I was until I realised that HMRC’s arrogance has probably cost us taxpayers £653,000.  That is the tax that Mr Mabbutt would have owed had HMRC assessed it in time.

When his accountants challenged the validity of the enquiry notice on 24 March 2011, HMRC could have said, “We think our enquiry notice is valid but if it is not, we can still ask for the information that we need under FA 2008, Sch 36, para 21(6) because, although we can no longer enquire into the tax return, we have reason to suspect that it understates the tax due”.  They would then have had until 5 April 2013 to raise a discovery assessment.  Indeed, the probability is that they could have raised a discovery assessment at any time up to 5 April 2015, as all they would have needed to do is show that the information shown on the tax return was insufficient for them to know that no further tax was due – and asking for more information probably demonstrated that of itself.

Instead they seem to have been much more intent on trying to establish “We are right!” than in collecting the £653,000 of tax.  As whether or not they were right had been called into question, wouldn’t a reasonable person have stopped and thought about safeguarding the tax in the event, however unlikely they may have thought it to be, that they might turn out not to be right?



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