ICAS criticises ‘cynical’ penalty culture

Two recent tribunal decisions backing taxpayer complaints against unfair penalties highlight double standards in the tax system and the need for an independent complaints procedure for tax disputes, according to ICAS tax director Derek Allen.

In his 19 September tax update on the Scottish institute’s website, Allen drew attention to two recent tribunal cases as evidence of HMRC’s “asymmetry of standards”, where it makes “many mistakes but suffers no sanction yet expects perfection from taxpayers.”

Allen, a former Inland Revenue inspector, said HMRC’s organisational culture is “cynical” and called for an independent review of tax disputes.

The complaint echoes critical comments about penalty notices issued by HMRC and disagreement over reasonable excuses for late returns that have been raised by AccountingWEB members (and tribunal judges) in recent months.

In DWS Environmental Ltd v Revenue & Customs (TC01325), published in July, the tribunal judge overturned surcharge penalties for late payment of VAT by a water cooler supplier.

Writtle College Services Ltd v Revenue & Customs (TCO1325) involved an appeal against a penalty for the late filing of P35 returns. On 8 April 2010 Writtle College Services sent its P35 return to HMRC but didn’t realise that in order to make a successful submission it was necessary to untick the test submission box.

The tribunal found the company had a reasonable excuse and the penalties were not due.

HMRC did not respond to a request for comment on the tribunals and Allen’s comments.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments
petersaxton's picture

Emails

petersaxton | | Permalink

HMRC need to set up a system where "customers" are sent email reminders at monthly/weekly intervals so they are alerted to when a submission has not been made.

Monty Python's picture

Deliberate

Monty Python | | Permalink

HMRC are under pressure to get the maximum amount of cash in.

The penalty regime is designed to do exactly that. Fairness and justice have nothing to do with it, it's simply designed to screw the maximum out of the taxpayer, and they think nothing of using threats and intimidation. In other words, they are a disgrace.

 

It's worse than that

Cruncher Alan | | Permalink

We have come across a case in the last few weeks where local inspectors are wanting to investigate the deliberate submission of  false accounts by the former accountants (without the clients knowledge) but Debt Management say it is nothing to do with them and are moving to close the business down because of some vat arrears.

Hard to believe they are all on the same payroll.

By the way, this is a good business that like so many others just now is going through a sticky patch.

 

 

 

Monty Python's picture

Hmmmm

Monty Python | | Permalink

Cruncher Alan PM | Sat, 24/09/2011 - 10:58 | Permalink

We have come across a case in the last few weeks where local inspectors are wanting to investigate the deliberate submission of false accounts by the former accountants (without the clients knowledge) but Debt Management say it is nothing to do with them and are moving to close the business down because of some vat arrears.

 

Actually the investigation of such an allegation would not fall within HMRC's remit at all and should be passed to the relevent authorities. In such a case HMRC could find themselves as witnesses and as such are not the appropriate people to investigate. Indeed by doing so they risk being accused of perverting the course of justice. I would also be very cynical as to whether clients were in fact aware.

 

 

Re: Hmmm

Cruncher Alan | | Permalink

Actuall HMRC are looking into the tax laibility that was hidden by this action.

The relevant Professional body has also been informed but has declined to take any action even though the tax alone is over £100k.

 

 

 

Monty Python's picture

A word of caution

Monty Python | | Permalink

Cruncher Alan wrote:

Actuall HMRC are looking into the tax laibility that was hidden by this action.

The relevant Professional body has also been informed but has declined to take any action even though the tax alone is over £100k.

 

 

Which would seem to suggest that there is no evidence of wrongdoing by the accountant.

Certainly it would be very dangerous to accuse them of such a serious matter without proof in the form of a succesful prosecution.

weaversmiths's picture

It's about time

weaversmiths | | Permalink

I have a minor case of a £100 fine for failure to send a manual Return by 31 October. HMRC were informed on a 64-8 of Income from property in April 2010.  Despite many requests they refused by omission to advise UTR. My client is a lady whose husband looks after all affairs like this - both his own and his wife's.  He is a senior Health Service Specialist in Sheffield and is extremely good at sending all paperwork to me. HMRC say they sent UTR number to client (more than once) and as correspondence did not come back they consider client received it. For some reason they persistently  refused to send it to me as Agent.  After protracted official complaint HMRC wont back down and it should go to Tribunal.  I have advised client to pay up as the cost would be prohibitive.  How can you convince a tribunal that lies are being told?  I am 110% certain that the all the fault lies with HMRC.  I had an identical case to this one (both 64-8s sent in the same post)  but when I complained about the penalty I got an apology.

I dread taking on a new client as the 64-8 is ALWAYS a problem when there is no previous UTR.   What a farce.  I am "winding down" so only get the occasional client by referral; I dont think I could cope if I could not see the end. I dont know how people with big practices cope.

TheAncientOne                         t

A Disgrace

taxbakbristol | | Permalink

As soon as Inspectors and above start being very economical with the truth then its time for the tax and accountancy institutes to get behind their members and fund some Tribunal cases so that the bad apples in HMR&C are winkled out .

As I have said before I work for my clients .......I pay my fees so lets see some action .I do not want our institutes too close to HMR&Cs nether regions!

Donald2000's picture

Of course its unfair

Donald2000 | | Permalink

I have been agent in a case since October 2009. They have sent my client returns despite the fact that the client has only a single solitary source of PAYE as income. They even invented the fact that I told them the client was to be sent returns. They have fined the client for non submission of returns, even though they know that there is only one source of income, the clients PAYE earnings.

They have not informed me of the fine or attempted to communicate with me in any way. Can someone tell me why they consider themselves to be above the law in this way? Because of their refusal to listen I have had to get the client's constituency MP involved. HMRC are on the slide to lawlessness and the government need to take control of it pretty quickly.

Address change

Vince54 | | Permalink

Have I missed something here, but how did the bailiffs manage to turn up at the right address?

Possible falsification of profit adjustments

avfc123 | | Permalink

I took over a tax enquiry case where the agent was dilatory with his replies to the Inspector & put both me & the client on the backfoot, but we have been able to work through the problems & we have basically agreed the addbacks for the enquiry year. The problem was that the Inspector wanted to go back 6 years & the adjustments he proposed were unreasonable. In some cases he was adjusting for items that he had already agreed were one-off addbacks to the enquiry year. As I have been able to reduce the original demands on the partners from nearly £200,000 ( tax, interest & penalties) to below £50,000, the Inspector is clearly put out & has repeated failed to provide me with a breakdown of the suggested offers to close the case. On enquiry I have uncovered other 'adjustments'  to earlier years which did not apply. We are nearing the position where we should be able to close the case, but I wonder whether we should complain & if so, now, or after agreeing the offers. The complaint would be that the Inspector was, at best, incompetent, or, at worst, deliberately falsifying the figures & hoping that if he did not send a breakdown of his adjustments we would just accept them.

Any thoughts would be appreciated.

adoggett's picture

Penalty Dictatorship

adoggett | | Permalink

Penalties are levied to produce additional tax. As penalties and levies on cigarettes, drink and speeding offences reduce, another source must be found. Asking computers to issues penalties has been the answer - in a past year when I received penalties for late submissions of P35's amounting to just below £25,000.. I was unable to speak to any non-alien, until routed through to a Collector, who didn't know what I was talking about. I think where Penalties are issued incorrectly, HMRC should pay out an equal sum to the taxpayer. Isn't it a sign of the times that people set up a company to avoid being taken down by fines.

 

 

petersaxton's picture

Today I received 5 employer penalties of £400

petersaxton | | Permalink

3 were ex-clients who have repeatedly told HMRC that they don't have a payroll scheme.

1 was a client that I had a confirmation that I'd told HMRC of a nil return

1 was a client that HMRC hadn't sent me the new employer details in time before the deadline and refused to give me the details over the phone like previous years so I told them the information there and then and made a complaint.

I now have to deal with all five penalties which should never have been raised by HMRC.

Unrepresented at Tribunal

wingco44 | | Permalink

I have recently been to a 'preliminary' hearing at a Tax Tribunal without legal representation and found the entire process relatively easy and almost enjoyable.  I had done a huge amout of preparatory work and obtained many relevant documents and case histories from Law libraries to support my case. 

The interesting aspect of this recent experience was how friendly the VAT representatives were; they were bending over backwards to help me and appeared genuinely to want to resolve our dispute.  I'm not too naive as to think, however, that this is the end of the matter but I would urge anyone who can't afford lawyers to defend themselves.  I approached one top law firm (no point in using anything but  top people) and they wanted £50K on the table just to investigate my case, "It will takes weeks of research" and another who wanted £20K up front and £3K per day in Court plus expenses!!!  I would have thought they could have paid for their own petrol and lunch at those prices.

You ask 'How can you convince a Tribunal that lies are being told?'  Well, a few recent Tribunal cases have highlighted the need for HMRC to have 'the onus of proof' and they would have to prove their side of the argument and not the other way round.......and that can be almost impossible when letters/returns have gone missing in the post - I've never known them to send letters recorded delivery!  And Tribunal Judges appear to be ever more sympathetic to the tax payer and less so to HMRC.

In Oct 2011 I have had 2 business colleagues who have paid out approx £20K each in VAT fines and input VAT overpayments and both think they are 100% right but didn't want to go to Court.  It is a very sad day when only the very rich can afford to revert to Law.  In both cases their accountants advised them to pay up rather than go to Tribunal; I think this is not always good advice.

There was a distinct impression in my case that HMRC did not want to pursue an expensive case.  My advice is to advise your client go for it alone (unrepresented).  And they might even enjoy standing up for their rights.

Bailiffs knew the right address

wingco44 | | Permalink

Probably because they did their homework but it does show that these people should have defended their case.  If the Bailiffs can get the address right so should HMRC.

Of course it is unfair!

wingco44 | | Permalink

Surely, if HMRC had to compensate the tax payers for their mistakes, this sort of nonsense would stop overnight.  The inspectors should be held responsible for gross errors.  How often have we seen cases costing many thousands of pounds end up in Court only for the Judge to decide in favour of the apellants?  The many IR35 cases underline this and now it appears HMRC are reluctant to fight IR35 cases.

I feel confident that these arbitrary, computer-driven and unfair penalties would soon go the same way.

I have just received a penalty notice despite having written many times to HMRC asking a simple question...but the computer 'says no'.  In fact, I get no response for 2 months and then a penalty notice.  That cannot be right?  And it is not just a case of not paying my taxes.  I will not pay the penalty because I'm confident that HMRC are at fault by failing to respond to my perfectly reasonable question and in any event, I do not belive I owe them anything.....so why pay some automated fine?

Eventually, I will close my highly ethical and vital health business down and put 5 people out of work if it continues like this.......you can only take so much.

petersaxton's picture

My experience

petersaxton | | Permalink

I spent months explaining the situation to HMRC regarding a VAT issue but I couldn't get anything other than standard responses saying HMRC were correct.

I decided to go to the VAT Tribunal.

A week before the Tribunal date HMRC wrote to me and said they had reviewed the case and agreed with me.

 

adoggett's picture

VAT Trap

adoggett | | Permalink

The VAT trap can be a killer.. even our illustrious Minister for Business, appears to have fallen foul of this one.. I appreciate destroying small business's seems like a good idea for government - Why don't we all work for one company and ditch self-employment .. About time realism came into the Penalty Regime.. £100 penalty is a lot of money for the low earners.. I have the feeling government wishes to destroy the will to be self-employed.

Destrying the will of the self-employed

wingco44 | | Permalink

Well said Adoggett - I know of a number of self-employed peope who have given up or who are on the verge of giving up.  Most have received penalty fines for inadvertant minor oversights and they just don't have the energy to fight back.  It's far easier to pay the fines!

I am in a similar position.  Despite having an excellent accountant, I am constantly receiving fines and theats from HMRC.  I duly walk down the road and deliver them to the accountant who then challenges HMRC, invariably wins but I get charged for his valuable time.  We all know of the Cumbrian taxi driver who went on the rampage killing many people - he was facing huge pressure for tax 'problems'.  I'm not saying he was in the right put this sort of pressure can cause people to break and yet there is little or no comeback when they get it wrong.

We keep hearing that the economy is going to have to rely on the private sector and SMEs but right now, there is a bubble fit to burst!

penalties

david5541 | | Permalink

its about time our politicians(if they have any clout) told HMRC staff to penalise and intimidate the high earners in this country rather than the easy "small fry" by the 1000! which is where most inspectors seem to spend most of their time.(quite apart from all the clerical staff who run the HMRC system and just get it wrong(or the system gets it wrong-the usual explanation-. 

 

Tax Inspectors i deal with always take the high penalty intimidation route (although a couple have shown a bit of circumstancial perspective on the cases I have dealt with.....)