PENALISED BY GUIDANCE

 

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PENALISED BY GUIDANCE

 

I was reading an article the other day by Robin Ellison, a well-known solicitor, when my eye was caught by “HMRC publishes tens of thousands of pages of “guidance” breaches of which also involve heavy penalties”.  Surely not, I thought.  Guidance is just that.  You cannot be penalised for ignoring HMRC guidance, but you can be penalised for ignoring the law.  Tax is a creature of statute.  It is governed by law, which is either passed by Parliament or authorised by Parliament (statutory instruments) or in some fairly minor administrative areas promulgated by HMRC under specific statutory powers.

 

But after a bit, I realised that, in practice, Robin is largely right.  Many, if not most, HMRC officers who impose penalties seem completely oblivious of the law.  They rely wholly on HMRC guidance.  Most unrepresented taxpayers – and, sadly, some small firms of accountants – are unfamiliar with the law too, and if HMRC say that a penalty has been incurred, accept that as a fact.  Accordingly, I think that many people are charged, and pay, penalties on the basis of HMRC guidance, albeit in many cases no penalty, or a significantly lower penalty, is in fact due under the law.

 

In many cases, the HMRC guidance reflects the law, but guidance is just that; it cannot relate to a specific set of circumstances so lays down principles.  Unfortunately, many HMRC officers seem to try to squeeze the facts into the guidance rather than consider the facts in the light of the guidance.

 

On the question of guidance, my attention was recently drawn to what HMRC say about the congestion charge in their Employment Income Manual.  This ties the charge to the registration of the car.  HMRC think that if the charge is incurred by a vehicle registered solely in the employer’s name and the employer bears the charge, there are no tax consequences for the employee.  However, if the charge is incurred by a private vehicle registered in the employee’s name but the employer pays the charge, “the amount of the payment is a benefit to the employee because it prevents a penalty fine being imposed on them”.

 

I find that an extraordinary concept.  HMRC seem to have discovered a new way of collecting lots more tax, because there is nothing special about the congestion charge.  Perhaps business rates are not a deductible expense.  Most of us have seen them as a normal business expense, but if the occupant does not pay the rates, he can be fined so rates cannot be wholly and exclusively incurred for the purpose of the business if there is also a purpose of avoiding a fine for non-payment, which is a non-business item.  And what about licences?  A taxi driver needs a Hackney cab licence or a private hire licence and if he is employed by the taxi company, it pays the licence fee but now HMRC have discovered that while it thought it was doing so solely so that it could run its business, it is actually partly doing so to avoid the driver being fined for driving without a licence.  The possibilities are endless.

 

Or, of course, the guidance might be complete nonsense!  The congestion charge, like tax, is a creature of statute, in this case the Greater London (Central Zone) Congestion Charging Order 2004 (as amended).  It imposes the charge “in respect of each charging day on which a relevant vehicle is used or … kept on one or more designated roads during charging hours”.  The charge is imposed by the payment of a licence fee to Transport for London.  There is nothing in the Order to tie either the licence or the penalty to registration of the vehicle.  The person licensed to use the vehicle in the charging zone is whoever chooses to purchase a licence (by paying the charge).

 

As the charge is for a licence to use the vehicle in the zone, it is simply an extra cost of driving in London.  As such, its tax treatment will follow the normal rules for motoring costs.  If the car is used for private reasons (including home to work travel) there will be a benefit-in-kind on the employee if it is his car and, if it is his employer’s car, there is technically a benefit, but all of the benefits from the use of a car (other than fuel and the provision of a chauffeur) are rolled up into a single car use charge.

 

The employee who drives down in his own car from his normal pace of work in Nottingham to visit his employer’s head office in London is driving in the course of his employment and is entitled to be reimbursed all the costs of doing so, including the congestion charge, without being taxed on a benefit-in-kind.

Tax does not always conform with common sense, but it usually does so!

 

ROBERT MAAS