HMRC refusing to accept tax returns or update tax figures assessed

HMRC refusing to accept tax returns or update...

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Interesting one this that I think might get messy and it applies to more than one client.

I've got an Electrician who came to me in trouble with several years of tax returns outstanding. His previous accountant was an unqualified who said he had submitted tax returns going back to 2004/05 but hadn't.

We submitted the tax returns from 2004/05 through to 2010/11 immediately with the "non electronic" ones going to the SA office with a covering letter, apologising and appealing penalties on the basis of a marriage breakdown and accountant troubles.

One determination was in place for 2004/05 but after that, the figures were estimated by HMRC.

Upon doing the returns, it emerged that the client, subject to CIS, had actually overpaid tax by £1000-£2000 for every year going back to 2004/05 because there was in fact no liability for tax at all in several years but CIS had been stopped at source.

HMRC are refusing to repay the overpaid tax for 2008 and prior - which I expected, but the problem is, they are also refusing to accept the updated figures and so continue to chase spurious estimates where no tax is due. That means that for one year where the client was thrown out of his house and barely worked, HMRC are sitting on £2000 CIS tax withheld, but also are chasing him for £4000 of estimated tax, interest and penalties on top. That means they are going for over £7000 of tax and interest etc in a year where the taxpayer only grossed £7000!

I've tried the "unjustly enriching" approach and appealing to their better nature(!). I tried quoting S32 TMA1970 but they said it didn't apply as the client hasn't been charged twice. I've tried "special relief" for the overpayments which they may be grudgingly accepting for the one year where a determination was made but because they didn't make determinations after 2005 (which they cannot explain why), they are saying there is no mechanism for them to accept a return nor amended figures so the estimates stand.

Whilst I do not defend a client who cannot file returns on time, and whilst i could accept the non repayment of overpaid tax, I cannot accept that HMRC can simply ignore submitted figures beyond four years ago as well as keep the overpaid tax. This is, in my opinion, extortion, theft and fraud.

What would others do as a next step? Independent review and quote S32 TMA1970 again as he has effectively been charged twice? (CIS overpaid and tax assessment). Tribunal? MP?

Replies (7)

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By justsotax
13th Sep 2012 11:01

...

well first i think you need to establish whether they have in fact made a determination or not (an estimate sounds to me like a determination but you should clarify) - if its a determination then you have very little room for movement.

 

Assuming this is the case...then i think all you can do is challenge the determination figure on the basis that given all of the information it is an unreasonable assessment at best, and at worst given previous history of the taxpayer (I assume he has always had CIS tax deducted) there should have been a credit for CIS - i guess they may argue they have taken account of this....but if it is not clear i would argue they need to adjust their figures (even if just to reflect what would have been reasonably expected).  Have a look at SALF209 in the hmrc manuals....see determination of tax due and state that back to them.... 

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Replying to Portia Nina Levin:
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By dhalsey
13th Sep 2012 11:12

Only one determination

No, the only determination is for 2004/05. The estimated tax figure for 2005/06 is two payments on account based on the determination.

Ironically, you have more room for manoeuvre with determinations, because according to HMRC, their equitable liability policy was replaced with Overpayment relief: special relief which only applies to determinations whereas equitable liability covered estimates as well.

They are saying the other non determined years are simply out of time to file a return, and that special relief doesn't apply as there is no determination.

I wondered if perhaps I could argue that if they accept the correct figures for the special relief against the determination in 2004/05 then would this not then update the payments on account to zero in 2005/06?

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Replying to wendybradley:
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By david5541
13th Sep 2012 12:36

determinations & payments on acct

dhalsey wrote:

No, the only determination is for 2004/05. .

Ironically, you have more room for manoeuvre with determinations, because according to HMRC, their equitable liability policy was replaced with Overpayment relief: special relief which only applies to determinations whereas equitable liability covered estimates as well.

"They are saying the other non determined years are simply out of time to file a return", ...................nevertheless you have filed a return of income so the return of income(in the absence of all else) is the evidence they have.  

 

 and that special relief doesn't apply as there is no determination.

I wondered if perhaps I could argue that if they accept the correct figures for the special relief against the determination in 2004/05 then would this not then update the payments on account to zero in 2005/06?

"The estimated tax figure for 2005/06 is two payments on account based on the determination" 

 

once they correct the assessment for 2004/2005; they should also by virtue correct future payments on account-2005/06 onwards.

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By justsotax
13th Sep 2012 11:39

?!!? So have i understood this

correctly....they are arguing that the 2005/06 figure is an estimate not a determination (because it is a POA based upon the determination from the previous year).

 

hmmm....

1)overpayment relief took over from error/mistake regime....this case is not an error/mistake....its a failure to deliver a tax return

2) If they have set out a determination, then there are timelimits to correct, which i believe you have broken, however the determination must be based upon something, they can't simply pluck a figure out of the air....even according to their own manuals.  So in this case i would argue that they have accounted for CIS (and if his historical earnings were low then this would add to any argument that the determination figure was too high/incorrect)

3) Estimates....what are they.....i would ask that the Revenue refer you to the passage in the legislation where it details how 'estimates' are made in respect of tax returns that have not been submitted, and what the timings are for appeals, interest, penalty charges are etc (I don't believe this section exists)....

The only estimate made is based upon a determination....therefore the estimate is actually a determination....if that makes sense.....

 

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By justsotax
13th Sep 2012 12:02

sorry ignore 1....

did not consider 'special relief'

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By david5541
13th Sep 2012 12:23

special relief and AAM

make an application to an agent account manager saying its unjust.

ask for special relief.

dont address anything to a PO box number

address it to

"technical officer"

at the district address-which you can fine out by veiwing olderstatments of account online

then you wil get an educated response and not one from any of thel the jobsworths(assistant officers) at HMRC in some big processing office like cardiff.

 

look up the cis vouchers if you can find them

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By codling
14th Sep 2012 15:43

Determination

I can see no statutory definition of determination in the special relief provisions other than HMRC has the power to raise and issue a determination of the liability.

Where a Tax Return is not submitted HMRC have always had the right to make a determination of the liability which they often did by issuing an estimate of it.

If no such estimate is issued then it is surely reasonable to assume that the none submission of the Tax Return will have been reviewed by HMRC and because of the payment of interim payments based on the previous year, it has been determined that this would represent a true reflection of the liability for the none submission year and so it would, perhaps, not be necessary to issue a formal determination in a different amount.

In this way HMRC will have made a determination of the liability in the amount of the interim payments made. There has, of course, been nothing formal issued and if it is the case that a written determination has to be made then there has surely been a systematic failure by HMRC to act in accordance with their own instructions. If this is the case then why should HMRC incompetence have a detrimental effect on someone with an otherwise legitimate special relief claim.  

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