IS THIS THE SORT OF TAX AUTHORITY YOU WANT? - PART 13

 

BLOG 236

 

IS THIS THE SORT OF TAX AUTHORITY YOU WANT? – PART 13

 

Clive Kingdon, Terry Stead and Ann Kingdon set up a partnership business in 1993.  The business related to drainage systems.  As any small business would, they engaged a local firm of accountants to deal with their tax affairs.  The accountant restructured the business partly as a partnership and partly a limited company.  Quite a lot of businesses operate such a dual structure.  The three individuals had little or no knowledge of tax or accounting and relied completely on the accountant.

 

In January 2009, the three changed accountants because they felt that the original accountant was too aggressive against HMRC.  In September 2010, HMRC wrote to the new accountants saying they intended to review the tax returns of the three individuals and the partnership but if the three thought that their returns were incorrect, they should contact HMRC and make full disclosure.  If they needed more information to do this, they should get it from the previous accountants, not HMRC.  The new accountants wrote to HMRC in November 2011 saying that there may be some irregularities in the returns for 2007, 2008 and 2009, but that they had only limited information and asked HMRC for whatever information they had.  HMRC appear to have ignored that request.

 

In June 2015, the accountants received a letter from someone new at HMRC saying that he was now dealing with the case.  Nothing then seems to have happened until February 2018 when HMRC said they had reviewed the files and considered that an extra £96,276 was due to HMRC.  In addition, interest and penalties would be payable.  HMRC then issued discovery assessments in March 2019.  By that time the partners had moved on to a third accountant, who appealed against the assessments.

 

The new accountant also asked for further information from HMRC which, like his predecessor’s request, they seem to have ignored.  The accountant also complained to HMRC in respect of HMRC’s handling of the case.  The Tribunal judgement tells us that, “HMRC accepted that they had been responsible for some delay in this case and that they had not managed things well.  The complaint was upheld in part”.  The accountant asked for an internal review.  This set aside the assessments on the basis that they had been raised under the wrong statutory provision.

 

After some further correspondence, HMRC issued revised assessments in September/October 2019.  The accountant appealed to the Tribunal on 1 September 2022 (that is probably a mistake as the hearing was on 26 September 2022; it was probably 1 September 2020).

 

With an appeal case, HMRC have to give the taxpayer copies of documents on which they intend to rely at the hearing.  It is only at that stage that they deigned to give the accountant 4,000 documents!

 

The tax returns were in fact incorrect, and the tax assessments could well have been right because the book-keeping was shoddy and insufficient to enable anyone to displace the assessments.  I will come to that in a minute.

 

The point that worries me is that, even if they were right, it is clearly completely unreasonable both for HMRC to have taken over 10 years to have raised the assessments and to have refused to release to the taxpayer the documents on which they based their case until the very last minute.  As the Tribunal records, “The length of time which this enquiry has taken has left the Appellant with poor mental health, has caused considerable emotional stress, and has been a traumatic experience.

 

What had Mr Kingdon, Mr Stead and Ms Kingdon done to justify such unreasonable treatment?  When they had found a local accountant in 1993, they had believed him to be wholly competent and happily left their financial and tax affairs wholly to him.  Sadly, their confidence was misplaced.  The accountant was Christopher Lunn, who was jailed in December 2015 for tax fraud.  HMRC had challenged the taxpayer’s accounts in 2010 because they had raided Mr Lunn’s offices and the documents they seized included some relating to the taxpayers.  Accordingly, the documents were held by HMRC’s Criminal Investigation Division who seem to have been reluctant even to release them to the people handling the case within HMRC.

 

Happily, although the taxpayer could not show that the additional tax claimed by HMRC was not due, the Tribunal held that HMRC had left it too long to raise the assessments and so set them aside as being out of time.  Perhaps that is poetic justice!  The £96,000 irrecoverable tax is at least some compensation for the stress and trauma that HMRC put the taxpayers through.

 

ROBERT MAAS