ALICE IN OSBORNELAND

 

BLOG 234

 

ALICE IN OSBORNELAND

 

Alice came to a clearing.  In it was a large table and at one end of it sat the Hatter, who Alice had previously met at the Tea Party.  Only this time the large label on his hat read “HMWRC”. 

 

“What is HMWRC?”, said Alice. 

 

“Don’t be rude”, responded the Hatter, “It’s obvious!  Her Majesty’s Wonderland Revenue & Customs.  I’ve taken on responsibility for your tax affairs and you’re in deep trouble, young lady”.

 

“What have I done wrong” said Alice hesitantly, being a bit bewildered but having learned how easily it is to go wrong in this strange underground world.

 

“You filed your return too early” said the Hatter.  “That makes you liable for a penalty”. 

 

“A penalty for filing early!  That cannot be right”, retorted Alice. 

 

“No”, said the Hatter, “A penalty for not filing at all.  I’m talking about Alice Ltd’s RTI returns of course”.

 

“Nonsense” said Alice, “I know what I pay myself each month and I know there is a penalty for being late, so I filed all of my January, February and March returns last January”. 

 

“Exactly”, said the Hatter, “You didn’t  file returns for February and March”.

 

“Yes I did”, said Alice.  I filed them online and HMWRC’s online system responded “Success”.  “I kept a screen shot”.

 

“Ah”, said the Hatter, “When HMWRC say “success” it does not mean that you successfully made a return; it simply means that our computer accepted what you transmitted”.

 

“But I’ve got a copy of what I sent”, said Alice.

 

“What you sent too early is irrelevant” retorted the Hatter, “It is not a return.  Accordingly, you have not made returns for February and March and must pay penalties for non-submission”.

 

Alice stamped her foot.  “You’re mad”, she exclaimed.  The Hatter looked at her severely.  Too late Alice remembered that it was the mercury used in curing felt that addled a Hatter’s brain, and it was impolite to have pointed his misfortune out to him. 

 

 

 

The Hatter was silent for what seemed like ten minutes and then said, “It’s you who is mad.  No-one in their right mind could think that a return submitted too early should be regarded by HMWRC as satisfying the requirement to file a return”.

 

Alice was beginning to get angry.  “Your computer accepted the returns, surely it would not have been programmed to do so if it was wrong to submit a return early.  HMWRC encouraged me to submit the returns early so how can you now complain”, she said triumphantly. 

 

“You must spend more study time on vocabulary”, said the Hatter.  “HMWRC didn’t encourage you to file too early; it merely facilitated your wish to do so.  Facilitation is no more encouragement than cheese and chalk”.

 

I suspect that by now readers will be thinking that I am letting my imagination run riot and, as I am no Lewis Carroll, this is beginning to get farfetched.

 

I admit I made up Alice, it is a pseudonym for John Howard, and Alice Ltd is a pseudonym for Quayviews Ltd.  But the rest is real – well not word for word, but it is what actually happened to Quayviews Ltd.  Whether the tax legislation of Wonderland is identical to that in the UK as I have assumed is questionable though.  I doubt that Wonderland (if it exists) would have enacted such ridiculous legislation as the UK Parliament under David Cameron, and at the request of Chancellor of the Exchequer, George Osborne, has done – or at least Judge Anne Fairpo (who I have respect for) believes that it has done.  I blame David and George because I think the problem is that the RTI legislation does not appear to take into account the pre-existing penalty rules.

 

Actually, I am not convinced Anne is right.  She started from the penalty legislation and seems to have assumed that there is a statutory obligation to submit an RTI return each month.  If she had gone back to the PAYE Regulations, I am not confident that she would have accepted that such an obligation existed.  At least, I cannot find it.  I hasten to say that I am not criticising Anne for not having looked at the Regulations.  Tribunal judges are not expected to search out the law.  It is for the parties to draw to their attention the law on which they rely and where, as in this case, there is a taxpayer in person (or its lay director), there is an expectation that HMRC will draw the Tribunal’s attention to legislation that supports the taxpayer’s case as well as its own.

 

I suspect that Quayviews real problem was not the law.  This seems to me to allow a return to be filed at any time before the remuneration is paid.  It is that HMRC have programmed their computer to expect an RTI return each month.  Where a return is filed before the start of the month, the computer treats it as a return for the month in which it is filed because, being inanimate, it cannot interpret what is being filed; it simply knows something has been filed.  The corollary of that is that it knows when it does not receive anything during a month.  It is programmed to flag up that it has not received a return.  It is obviously depressing if HMRC have programmed their human staff to believe the computer without investigating the reason for the flag, but I think it more likely that they simply do not have the resources to investigate why the computer has flagged up that a return has not been filed.  But penalties can be charged only for breaking the law.  Although HMRC frequently seem to think otherwise, they cannot be charged for not conforming with HMRC’s internal systems or not following HMRC’s guidance.

 

I do however think that something is seriously wrong within HMRC for a case like Quayviews Ltd to have been argued before the First-tier Tribunal.  I doubt that HMRC’s Solicitors Office actually employs the Mad Hatter (if he exists) but I do not understand how, with knowledge of the facts set out by Judge Fairpo in her decision, the Solicitors Office took the appeal to a hearing rather than concede the case.

 

Happily, and in my view inevitably, Judge Fairpo had little difficulty in finding that Alice/John Howard had a reasonable excuse and threw out (sorry, set aside) the penalty on the basis that John Howard had acted reasonably.

 

ROBERT MAAS

 

DOES ANY READER KNOW AN MP?

 

 

DOES ANY READER KNOW AN MP?

 

 

In its recent decision in Hoey and others v HMRC [2022] EWCA Civ 656, the Court of Appeal commented (at para 132): “In any event, we do not regard this result as … impeding access to justice …  The attractions of the First-tier Tribunal as a “one stop shop” for all issues concerning the amount taxpayers should be required to pay to HMRC cannot alter the meaning and effect of a legislative scheme that … requires certain issues to be litigated in the tax Tribunal, others to be litigated by way of judicial review in the High Court …, and disputes about the amount to be collected by HMRC dealt with as a matter of enforcement in the civil Courts (the County Court or High Court)”.

 

The underlining of the word “scheme” is mine, not the Court of Appeal’s.  To my mind a scheme is something that is carefully planned.  It is clearly not a word that can be applied to the effect of an accident.  Sadly, I suspect that few MPs read this journal, but if any reader has an MP on his or her contact list, I would be grateful if he can ask that MP to explain the logic that Parliament applied in enacting this “scheme”.  It is something that has long puzzled me and for which I cannot even begin to understand the logic behind it.  I would love to be able to share with readers the parliamentary reasoning that gave rise to this “scheme”.

 

I also can find nothing on the Gov UK website to explain this separation of responsibilities to the average nurse, or binman, or clerical assistant, or the millions of other people who are paid under deduction of PAYE so only need to interact with HMRC when something goes wrong.  If Parliament has a scheme, it surely would cost little to explain it to the electorate.

 

Sorry, I seem to be getting a bit sarcastic.  I am one of those in favour of the First-tier Tribunal (FTT) being a one-stop shop for the resolution of tax disputes.  The Court of Appeal explains (at para 31) that the tax system involves three stages: liability, assessment and methods of recovery.  It defines “liability” as meaning “liability to pay tax”.

 

So how does this affect the average employee who is taxable under PAYE?  Liability derives from a person’s self-assessment tax return.  Most PAYE taxpayers are not required to complete a tax return.  For such people, liability derives from the PAYE tax table unless they ask to be issued with a tax return.  Nowadays, assessment also derives from the tax return as we have a system of self-assessment.  Both liability and assessment fall within the jurisdiction of the FTT.

 

The issue in Hoey was that in 2003, Parliament passed a law (ITEPA 2003, s 684(7A)(b)) that reads, “Nothing in PAYE regulations may be read … as requiring the payer to comply with the regulations in circumstances in which an officer of Revenue & Customs is satisfied that it is unnecessary or not appropriate for the payer to do so”.  In other words, if an HMRC employee decides that it is unnecessary for your employer to deduct tax from your salary, HMRC can come to you for the tax, not your employer.  The Court of Appeal in Hoey said that they can do it retrospectively.  For example, suppose your employer deducts tax under PAYE from your salary but does not pay it to HMRC.  HMRC can come to you three years later and say, “We have decided that it was unnecessary for your employer to apply PAYE, so please pay us the tax”.  You would then in law be required to pay the tax twice!  Personally, I find that an extraordinary law for MPs to enact.

 

I have looked at Hansard.  All this says is that the change gives effect to recommendations of the Tax Law Rewrite Committee and both the Labour Government and the Conservative opposition welcomed it.  I very much doubt that the Tax Law Rewrite Committee actually said that more discretion should be given to HMRC!

 

So suppose that HMRC direct that you should pay tax twice in this way?  What are your rights?  The answer is that you cannot go to the FTT (which is absolutely free and tries hard to be friendly to an unrepresented taxpayer); you have to apply for judicial review.  I have never applied for judicial review.  My understanding is that you need to engage both a Solicitor and a barrister.  I Googled, “Average cost of a judicial review”.  Unfortunately, lawyers seem very coy about costs.  My guess is the cost is a minimum of £30,000 – and if you lose you have to pay HMRC’s costs as well.  So if HMRC require a nurse or a binman to pay tax twice, what is their realistic legal remedy?  The have none!  We are continually being told that we have a fair tax system.  What does “fair” mean if HMRC asks you to pay tax twice and the costs of an appeal against that decision is way beyond your means?  I hope that someone can find an MP who is willing to explain that.

 

So what does your nurse do?  She can wait for HMRC to seek to collect the tax.  This itself has problems because HMRC have two choices (and of course your nurse in theory can apply for judicial review of the one they choose).  They can send the bailiffs round to seize and sell the nurse’s TV and other furniture (but as we have a “fair” system they have to leave her with a bed, a table and one chair).  Alternatively, they can seek judgement for the debt in the County Court.  This need not be an expensive procedure (as the nurse can argue her own case) but is more expensive, and a lot more intimidating, than an appeal to the FTT.

 

I fully accept that this is a great system for HMRC.  It allows them to collect tax from the poorer members of society very easily and irrespective of whether it is actually due in the safe knowledge that the taxpayer has no real option other than to pay up.  I doubt that it is a great system for taxpayers, who are expected to do as they are told by HMRC.  Nevertheless, it is a “scheme” that Parliament has, presumably after due consideration, felt appropriate as the best way to tax the average nurse and binman (I should stress that I do not mean to disparage those two occupations; I regard them as examples of the sort of essential, but poorly paid workers on which society is dependent but which, it appears, our MPs choose to treat with distain).

 

That “presumably after due consideration” is a bit tongue in cheek too.  I get the impression that if HMRC asks for more powers both of the main political parties are happy to comply, no questions asked as to whether they actually need them.  In many cases they don’t!  They certainly do not need powers the exercise of which cannot effectively be challenged before the FTT.

 

 

ROBERT MAAS