Taxpayer wins appeal against 'careless' penalty

A taxpayer has won an appeal against a careless inaccuracy penalty for omitting information about his employment income in his online tax return. His argument was that HMRC's online filing software was to blame.

In the case of Andrew Banks v HMRC [TC03592], the taxpayer was charged a penalty for "careless inaccuracy" after omitting just over £200,000 employment income from two jobs from his online tax return.

When he submitted his return in January 2012 it showed no extra tax due at the end of the year. 

Banks appealed against the penalty, arguing that when he completed the forms online it showed no more tax due.

He said that it was not his fault that HMRC’s system had failed to register the details submitted, so he should not be penalised.

HMRC argued that Banks had omitted the details because he thought his employers had dealt with all the tax under PAYE.

It said it had checked its system and found no faults and denied the taxpayer’s claim that the system was "beset by well publicised technical challenges."

Tribunal judges Michael Connell and John Coles agreed with the taxpayer on the "balance of probabilities". 

They ruled that the burden of proof was on HMRC to show that Banks had been careless, and HMRC's records were inadequate to meet this test. "HMRC [has] not established with sufficient certainty that if the appellant did not complete the employed income pages the system would necessarily show this," the judges said.

Commenting on the case, David Heaton, employment taxes partner at Baker Tilly, said "Most of HMRC’s well-publicised IT problems have been with the RTI system for PAYE, but few IT systems are problem-free. It is reassuring to know that the courts are there to stop the machines taking over completely, although less reassuring to read that the HMRC staff couldn’t explain to the taxpayer or the tribunal certain aspects of how the system worked."

Comments
JCresswellTax's picture

Sounds to me    2 thanks

JCresswellTax | | Permalink

Like the taxpayer said "I entered that and it didn't appear"

Aye right mate - away you go...

A surprising outcome    2 thanks

WongR | | Permalink

As much as I dislike the approaches HMRC takes in many cases - this result looks horribly wrong to me.

As part of the online filing software allows the printing of the Income Tax Computation, £200k missing in total income, I would have thought would be a horribly glaring omission.

Naturally, maybe the taxpayer was a multi-multi millionaire and the odd £200k may have been easily missed.

Besides as a person with that kind of income, (I would expect) they normally would be at a higher sophistication (and indeed employ an accountant) than the average tax payer.  For that reason alone, I would suggest the onus should really be put back on the taxpayer to check his return before submission.

 

.

ireallyshouldkn... | | Permalink

 

It is quite common for people to assume they only need to declare non-PAYE incomes.

 

 

I'm not so sure....    1 thanks

WongR | | Permalink

ireallyshouldknowthisbut wrote:

 

It is quite common for people to assume they only need to declare non-PAYE incomes.

 

 

 

I believe from how I see it - the argument put forward was that he had entered the details in already, but due to a "software glitch" the software did not show or recognise this income.  It still doesn't stop them checking the tax computation as anyone doing their own Tax Return online would have done so.

Joke

njpandya | | Permalink

The most appalling thing is given the size of country & available IT facilities, HMRC has significantly failed & still failing to address basic service delivery issues. The above argument of blaming each other is foolishness on HMRC part & they MUST prepare themselves to go a long way restoring people's faith in them. Time and again they are sending out signals as if they own a country & acting like a "Dick" TATOR. 

Completely out of subject but I am so surprised that despite miserable failure & expensive maintenance on IR35, HMRC MUST come up with a scheme like "CIS" for IT contractors like "ITCS" (Information Technology Contractor/Consultant Scheme) & MUST make compulsory to deduct tax and submit it to HMRC every month by umbrella company or agency whoever is managing their affairs. In this way not only HMRC will get money & have liquidity but they shall also see; how frequently these jokers keep changing their companies just to avoid VAT & many of them will be made to play fairly. 

mr. mischief's picture

not so clear methinks    3 thanks

mr. mischief | | Permalink

When you file these things every day, you forget how much of a foreign language they are to the average taxpayer.  Whether Mr. Banks had sufficient ability to have sense checked his tax return before submission I cannot say.

What I can say is that probably most of my clients would not, and this includes doctors, senior nuclear engineers, surveyors, architects and the like.

What I can also say is that I have had roughly 10 clients in the past 3 years who had messed up SA submission, putting things in boxes we'd never dream of doing.  As a result they had HMRC on the case.  In the most extreme case, thanks to high penalties HMRC had begun proceedings for bankruptcy.  When I sorted out her tax return - she'd omitted a new van for £16k! - she was in fact due a tax refund.

.    11 thanks

ireallyshouldkn... | | Permalink

Another thought from an IT point of view, why does it not pre-populate his PAYE income in the first place given HMRC already have the data?

Ditto P11D

Ditto any under/over payment adjustments via tax code and all the other "tricky" stuff that he average DIY tax payer wont have a clue about.

This then avoids HMRC having to issue amendments later on.

All the data is there, it is just not properly used. 

JCresswellTax's picture

I'm glad it doesn't    1 thanks

JCresswellTax | | Permalink

ireallyshouldknowthisbut wrote:

Another thought from an IT point of view, why does it not pre-populate his PAYE income in the first place given HMRC already have the data?

Ditto P11D

Ditto any under/over payment adjustments via tax code and all the other "tricky" stuff that he average DIY tax payer wont have a clue about.

This then avoids HMRC having to issue amendments later on.

All the data is there, it is just not properly used. 

If they made it this easy, I might be out a job...

Norway    1 thanks

angusnicolson | | Permalink

JCresswellTax wrote:

ireallyshouldknowthisbut wrote:

Another thought from an IT point of view, why does it not pre-populate his PAYE income in the first place given HMRC already have the data?

Ditto P11D

Ditto any under/over payment adjustments via tax code and all the other "tricky" stuff that he average DIY tax payer wont have a clue about.

This then avoids HMRC having to issue amendments later on.

All the data is there, it is just not properly used. 

If they made it this easy, I might be out a job...

The Norwegian tax returns come pre-populated with income, capital and debt details, where available.  There is still a lot of work required to check the accuracy of the figures, and to claim allowances, and in other cases to add information not otherwise available.

HMRC should have all the P60s by 19/4, so by the end of June they should have all of this available on the online system for unrepresented taxpayers, or for agents to refer to. 

Or at least they would if the systems worked, were linked and there was any forward planning in their IT upgrading plans.

IT Wise    2 thanks

alan.falcondale | | Permalink

Did HMRC or Mr Banks think to consult the NSA to see if they had any record of his missing data? They seem to have everyone else's

 

With such a critical system it would have been sooooo easy to have the page post the current details to a single triggered table to record precisely what was entered in the relevant fields and have those fields posted on screen and also available for scrutiny

We use triggers in db's to record all users field actions and you'd be surprised at how many people say "the system cocked it up" and then when they see the recorded fields and actions they 'fess up with "oh, yeah, I did that as well"

Higher rate Taxpayers    4 thanks

Ian McTernan CTA | | Permalink

You would have thought that the HMRC system would check the Return and see if the employment income matches with that reported to it via RTI or the end of year Return- information that is already on their system.

System checks, issues amended computation based on the information they hold.  No penalty applies.

 

Sadly they are so focused on raising penalties for almost everything that they have missed the point of the tax system- which is to make sure everyone pays the right amount of tax whilst enforcing the rules and collecting money for the Government to overspend.

This precisely why it is

armstrm | | Permalink

 

JCresswellTax wrote:

ireallyshouldknowthisbut wrote:

Another thought from an IT point of view, why does it not pre-populate his PAYE income in the first place given HMRC already have the data?

Ditto P11D

Ditto any under/over payment adjustments via tax code and all the other "tricky" stuff that he average DIY tax payer wont have a clue about.

This then avoids HMRC having to issue amendments later on.

All the data is there, it is just not properly used. 

If they made it this easy, I might be out a job...

This probably precisely why it is not done. The entire tax system and the processes are not up to scratch. We need a simple system which the lay person can use without requiring assistance from an accountant. It would be a good thing if fewer accountants were needed in this country. All MPs should also be obliged to manage their own tax affairs without help of an accountant.

raybackler's picture

Separate HMRC Departments

raybackler | | Permalink

There isn't one joined up system, because HMRC is a mish-mash of various departments and the co-ordination in the systems often doesn't work.  They can't even get the Dashboard for PAYE to agree with the system that they have in front of them when you phone in.

As to making it easy for the taxpayer, companies that provide accounting and tax software put huge amounts of effort into making sure the interface is easy to use and in eliminating the unnecessary.  They also put effort into data verification, so it is harder to leave information out.

Those new to self assessment using the HMRC website don't get this higher quality assistance.  We have taken on clients who believe the PAYE system is separate from Self Assessment.  They are often wary of entering PAYE data into Self Assessment, for fear of being taxed twice, on the grounds that "it has already been taxed once".  They don't understand the reasoning, so it is no wonder errors are made.

mydoghasfleas's picture

Depends what the non employment income is

mydoghasfleas | | Permalink

If you have two high paid employments and no other income and they are both taxed under PAYE and HMRC has coded them properly you should expect there to be no underpayment.

You are still responsible for checking the return but having seen the sort of output you get from HMRC's online filing software I have a touch of sympathy with Banks.  Does anyone know how much the unpaid tax was?  I also feel the "beset by well published technical challenges"  could have been used against him, if he knew the system fell over, should he not have been more diligent in ensuring the input.

Still it does go to show, there is no such thing as surefire when it gets to court.

HMRC - Pre-populating - State Pension

rjwaberuk | | Permalink

On the subject of HMRC online and information available, - a form of pre-pre-population is the information already on the taxpayer's on-line record - viz the "Information" page - dates of birth and State Pension.

The State Pension in the online record is a follow on to the pension uprating service which was provided by the now DWP to HMRC internally each year. Experience shows that when there are figures in "Information", other than 0.00, they are usually correct..... BUT (non-scientifically) about 50% of time when there should be figures the "Information" (May onwards each year)  is still showing 0.00!

Before considering "pre-population" in any shape or form - how about HMRC/DWP getting the "uprating" to report accurately to every known UTR record for aged taxpayers State Pensions?

Following from this - again before considering any pre-population - S.17 TMA 1970 bank interest data (which some time ago was rumoured to be visiting "Information") should be trialled in that page...........    

JCresswellTax's picture

With a comment like that

JCresswellTax | | Permalink

armstrm wrote:

 

JCresswellTax wrote:

ireallyshouldknowthisbut wrote:

Another thought from an IT point of view, why does it not pre-populate his PAYE income in the first place given HMRC already have the data?

Ditto P11D

Ditto any under/over payment adjustments via tax code and all the other "tricky" stuff that he average DIY tax payer wont have a clue about.

This then avoids HMRC having to issue amendments later on.

All the data is there, it is just not properly used. 

If they made it this easy, I might be out a job...

This probably precisely why it is not done. The entire tax system and the processes are not up to scratch. We need a simple system which the lay person can use without requiring assistance from an accountant. It would be a good thing if fewer accountants were needed in this country. All MPs should also be obliged to manage their own tax affairs without help of an accountant.

I presume you aren't an accountant.

carnmores's picture

if appealled taxpayer will lose

carnmores | | Permalink

yes to pre population

glynisbm's picture

Process now - check later....

glynisbm | | Permalink

And this is why the process now, check later procedure that HMRC currently use doesn't work. In the good old days, the Inland Revenue as it then was, would check the returns as they were being processed so errors would usually be identified and put right in a timely fashion. I used to deal with one old gent who always entered the capital figure instead of the interest on his investment income; I used to ring him up and ask him to let me have the interest figure.. I used to tell him we're only interested in the interest... oh how we would laugh!

The process now/check later system is used because the staffing levels at HMRC have been decimated and the government keep saying "do more with less" that works up to a point but HMRC have now reached critical mass and there really are not enough people to do the job as well as the IT and training which quite frankly are not fit for purpose; add to this the fact that lots of experienced staff have taken early retirement or voluntary redundancy due to office closures and you've got a recipie for disaster. 

johnjenkins's picture

Whichever way

johnjenkins | | Permalink

you look at it Banks wasn't careless. He's either a liar or HMRC have a tech problem. So penalty quashed.

HMRC really do have to follow this up as it could have far reaching consequences if they do have a technical issue.

If the supplements are ixbrl coded then surely they have to go somewhere at HMRC.

How much did it change his tax bill?

ringi | | Permalink

I check my tax return by seeing that the on line calc is the same as I get from my calcs, so missing of both employment income and tax pay in employment may still leave the resulting tax bill being as I expected.

Am I missing something?

vince8 | | Permalink

I have not read all the case blurb but am I missing something? One of the very first questions on the HMRC tax return filing site is "Were you an employee". Surely he must have said No since a Yes would have produced Employment pages.

Tribunal Judges

AndrewV12 | | Permalink

It looks to me like the Tribunal Judges are a bit like Court Judges, if you get the right one, your luck could be in, there is not much consistency, If it goes to a further appeal who knows what the outcome may be.

 

Filing and buying things on-line can be tricky, I have thought before I have paid for something on line,  but it appears i did not, even though i printing out an on-line receipt.

susanna russell-smith's picture

Not enough time before the system logs you out?    2 thanks

susanna russell... | | Permalink

Having read the case summary, I suspect that the fact that the taxpayer had to log on again several times whilst completing the Return may have something to do with the employment figures not being captured.  I have despaired over keeping EC Sales Lists alive in the past!

It was the first time he'd been asked to complete a Return, so no pre-populating available from previous years at least.  He apparently had no other income - it was just the two employments of £31k and £171k, the first of which had given him a personal allowance.

The only thing that sways me in the taxpayer's favour is that he fought it this hard despite the penalty only being £476... 

Fighting hard

chEEK | | Permalink

Yes it does beg the question why he would fight it that hard for such a relatively small sum. He's probably telling the truth. And it was apparently the first tax return he'd done, so it would probably faze him a bit, it's so easy to form misconceptions that appear logical and could in fact be correct if the system worked a slightly different way than it actually does.

I'm also in favour of the pre-population argument. It isn't the taxpayers' fault that HMRC are made up of different departments - that's their problem and one that they need to sort out. They should be made to understand that any problems arising from their lack of organisation are their problems and they should not be blaming the poor confused "customer" for the lack of joined-up processes.

In an ideal world, it should not only pre-populate known data, but also demand explanations for any changes made to pre-populated data (using drop-down lists of known reasons as far as possible, to minimise manual checking).

HMRC Customer service is at fault

philfromleeds | | Permalink

The problem is very simple, HMRC are undermanned.

The result is as an alternative to customer service they have opted for a very strict penalty driven machine.

If they would have had extra personel, they would have wrote to the tax payer and given him a summary of what he declared. In the Emplyoment part they would have told him how many employments he decalred and the pay and tax deducted in each employment.

They would have asked him to confirm the correctness of his tax return or asked him to amend his tax return.

Then if he would have said his original tax return was correct he could have been awared with a lovely penalty.

I know for a fact that their are people doing their own tax returns because they feel that not being professionally represented they are entitled to make mistakes as they are only ordinary people.

This man could have afforded to pay an agent to deal with his tax affairs, he clearly must be a clever man being able to earn what he does. I therefore feel the tribunal have set a bad precedant. In my opinion he messed up because I only use HMRC self-assessment online software and it works great for me and all my clients. In my opinion this clever man was trying out an experiment to see if he could get one over them (HMRC)

 

johnjenkins's picture

@philfromleeds

johnjenkins | | Permalink

I don't think the tribunal had any option. Banks said he put them through, HMRC couldn't or wouldn't prove he hadn't. So a good precedent in as much as innocent until proven guilty (which is the opposite of what automatic penalties do). If HMRC know banks has pulled the wool over tribunals eyes then at appeal they should prove it. If they can't then they have a hell of a problem.

Did it change his tax bill at all?

ringi | | Permalink

If so way given the HMRC had all the information they needed on the P60s….

johnjenkins's picture

I don't think

johnjenkins | | Permalink

the tribunal are bothered about that. It would appear that if you have to complete a return, under SA all income has to be declared on said return, regardless of what info HMRC have got. That's where the penalty regime kicks in.

HMRC demands

alan.falcondale | | Permalink

A shrubbery....

A couple of years ago, my

John Hudson | | Permalink

A couple of years ago, my daughter and I were applying online for a Student Loan. We put in all the information and (being a suspicious soul) I even took screen prints of each and every page before I clicked on Next or Complete. (I always do this for online banking as well.)  Everything was fine. Then a month or so later, we received a letter saying we had NOT applied for any loan at all, and was I sure we did not want a loan!

Now I do NOT know what happened in the HMRC case, and I could not comment about it if I did.  But I do know that in my case what was eventually picked up by the SLC computer was NOT what was on my final input. Computer errors can happen.