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HMRC: Compensating us for loss and delay? By Nichola Ross Martin

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1st Sep 2008
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What to do when HMRC keep getting things wrong? Accountingweb.co.uk's tax editor, Nichola Ross Martin proposes statutory compensation for taxpayers and agents when HMRC makes mistakes or loses data and documents.

'Such a scheme apparently will work for tax penalties...'

Since the merger of Customs with Revenue and without any doubt enhanced by staff cuts and chronically bad management HMRC has bloomed into a highly inefficient organization for administering the taxes acts. I doubt if there is an accountant across the land who has not run into problems with HMRC's helplines, the dreaded 64-8, VAT registrations or HMRC’s online services. It is immensely frustrating to find that you cannot complete the basic task for a client because something has gone wrong again, at HMRC’s end. I dread to think what the effect is on the tax collection side of the business.

Sorting out taxes is a pretty dire job for the British taxpayer, and especially those on lower incomes, think of all those pensioners on the wrong tax coding notices, think of all those tax credits claimants overpaid due to computer error. All in all, it's pretty lucky that there are charities around like Taxaid, Tax help for older people and of course organizations such as the Citizens Advice Bureau, there to mop up too. Oops, not for long, the government is about to axe that safeguard, that is sadly, another story...

When HMRC gets things wrong it costs us all money. Accountants regularly take it on the nose and there is a limit to how much you can reasonably charge a client when HMRC have lost the 64-8s again, keep logging you off with yet another error code, and then expect you to ring round, re-send, re-fax, re-apply.

The adjudicator

Historically, when you find that you (your client) is out of pocket due to HMRC error or mistake the procedure is that you first make your complaint to HMRC, first the case officer, then the line manager and after being fobbed off thus far and generally aggravated you write to the adjudicator. Many people are so outraged by this stage that they tend to write to their MPs too. The adjudicator will eventually make a ruling and may award costs. These are paid to the client, and will cover the accountants’ fees, net of VAT. The client is therefore not compensated for VAT if he is not VAT registered.

If you are like me, then your experiences of HMRC error, mistake and delay will have cost your average clients hundreds, not thousands of pounds. The time and expense of writing into HMRC and the adjudicator to make a claim for compensation will often increase the claim disproportionately – it might double. Making such claims also feels like a waste of one’s professional time.

A fresh approach

It would save all parties’ time if compensation for HMRC loss, error or mistake were awarded automatically, on a statutory basis. The argument for this, is exactly the same one as HMRC applied in putting tax penalties on a statutory footing, and so I will not repeat these. They are found in HMRC’s earlier Powers and Deterrents consultations.

The first matter is to work out a scale of compensation, which will be based on average partner’s time, perhaps adjusted for the differences in the regions.

The level of compensation would apply to the gravity of the problem. The highest level would be paid where it was found that the incident to which it pertained was wholly avoidable by HMRC and the taxpayer or agent had suffered prolonged stress, delay and were unable to carry out one or more tasks as a result. For instance, error or mistake caused by bad management or inadequate training – for cases when helpline advice was inaccurate, misleading or just wrong, bad systems or practices – for instance not dealing with post on a timely basis, or simply losing forms. IT error and system failure would form a sub-category for higher compensation, HMRC could in turn charge its suppliers. In other cases of genuine human mistake a basic level compensation would apply without any loading.

In partnership with the new Taxpayers' Charter

Unlike the new tax penalty regime, a new table of statutory compensation would be basic and simple; on cost benefits grounds. It could also tie into the Taxpayer’s Charter, that non-statutory document could set out the minimum service standards that we should expect from HMRC, these would thus be backed up by statutory compensation when those standards were not met.

Draft proposals

Since writing the above, and based on some of the comments below, I have created a draft proposal document. More feedback required!

HMRC's consultation "A new Charter for HMRC and its customers" requires a response by 17 September 2008.You need to respond now.

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Replies (29)

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By User deleted
06th Oct 2008 09:36

More errors
Jon
Thank you for your comments, please do use any examples you find here for your proposed judicial review.

This latest Any Answers: "They've done it again with P35 penalties" indicates that things are not getting any better,. I rather fear that once we have their proposed new system in place for late filing penalties "Merry hell" is going to break out. Well, in the Adjudicator's office, at least - if it can keep up with the volume of complaints.

Nichola Ross Martin
Tax editor, Practical Law Company

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By ralarsen
10th Sep 2008 11:20

Who pays?
Yes we the tax payers would pay, however we are paying now for an inefficient organisation.

My example of the VAT problem below, shows that they registered a company uneccessarily for VAT instead of group VAT, so now they are doing it twice, a waste of time and resources.

If they were efficient and run like any other commercial organisation they would probably save money in the long run, hence paying for the penalties they would pay us.

The online services has cost billions of pounds and who is accountable when we waste time trying to get through a system that isn't working properly.

If we go through the proper channels to get compensation for HMRC's error's it costs the tax payers even more than a straight fixed penalty system would, due to the length of time taken to resolve the issue.

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By AnonymousUser
09th Sep 2008 12:13

Compensation
Whilst I am all for compensation it is us the taxpayers (not the customers!) who would eventually pay for HMR&C's incompetance. If compensation be paid, lets see it being docked from the staff members concerned and the management, not to mention those in political office

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By User deleted
08th Sep 2008 13:54

Fighting fund
I think perhaps John Wright seems to have pointed the way forward. A compensation scheme is pie in the sky really unless we can force its introduction.

And the civil service pensions arguments. I have to take a stand here. This is the one where they can retire at 60 while the rest of us don't get the state pension till 67, at which point we can't retire anyway because we haven't been able to put enough away privately due to all the tax paid to let civil servants retire at 60.

I suggest that any compensation be taken directly out of the "civil service" pension pot.

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By User deleted
08th Sep 2008 12:13

Loved Cavatina ...
... but trying to contact HMRC is like playing snakes and ladders!

I do adopt a belligerent approach.

However, when it takes between 15-30 minutes to get hold of HMRC, not counting time lost in wasted calls arising from their new approach which entails having to re-dail following a recorded message telling you that the number you originally dialled, which was given on the letter they sent you three weeks ago (that you only received today!) has changed and "please try a new number". This you do whereby the phone rings for ages, gives you a protracted message ending with "we are unable to take your call at present, please try later" and then cutting you off.

If you are (un!)lucky enough to get through, you then have a further battle trying to get the person answering the telephone to finally realise that they don't have a clue what you are talking about and that you need to speak to X and they will transfer you.

After holding for a number of minutes the line goes dead, you shout "hello" down the phone for as long as seems reasonable without appearing insane and hang up. If you were lucky they gave you a name, maybe even a direct number, either way you are back at square one.

By the time you fianlly get to talk to the right person you are so exhausted either a) belligerence has gone out the window, as has the will to live and you have forgotten why you rang in the first place, or b) they tell you that you must not shout at them as this can be construed as abuse which they will not tolerate and they hang up on you.

So, if there is just you you have the luxury of belligerence. If you have a few hundred clients to be belligerent on behalf of it is not so easy.

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By IANTO
08th Sep 2008 10:58

HMRC penalties
I find this debate quite interesting. However, it is clearly, in the main, being conducted from an accountant's point of view. Not, being an accountant, naturally I have a different point of view.

I just can't see HMG introducing any legislation or scheme which in effect has the potential for losing it revenue. So, the alternative is to encourage change from a different angle.

In my opinion, and I have employed these methods myself, if you continually harass HMRC for the slightest mistake made with your affairs, then at some time they should ensure that when dealing with those affairs that they will ensure they do not make those mistakes. It's human nature. They will only pay attention to the problems. So the more your practice harasses them, the less likely they will make mistakes.

However, I know that accountants like to maintain good relations with their local HMRC personel, in an effort to keep HMRC from looking too closely at their actions. Here's the rub. It seems to me that there is some evidence to suggest that not all clients and their accountants' actions are squeeky clean, so obviating the need to avert the gaze of HMRC. Cash businesses are notorious for such actions. We all know that the building trade thrives on the "black market".

Due to the nature of my business, there is no opportunity to "manipulate" transactions and so I personally have nothing to fear from HMRC and consequently I always adopt a beligerant approach, a stance which has paid good dividends.

Remember, truth is a wonderful shield and weapon! So the message is, get squeeky clean and affect change by being beligerant to HMRC. This government does not respond to reasoned argument, it just listens to force. You only have to look at the issues surrounding pensions for civil servants to see that this is the case. It's no good talking about the issues. When reasoned argument doesn't work, then other tactics must be employed.


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By User deleted
08th Sep 2008 10:19

Accountants should be accountable too!
On the face of it we seem to be largley immune from smaller penalties (if you ignore the hidden cost of dealing with errors arising from whatever source) however we are not always the innocent party in problems arising - everyone makes mistakes.

People in glass houses...

When I read and hear the profession slating HMRC (which is a relatively easy target, I have to say) I think we are in danger of being a bit smug.

The profession has a lot of problems, particularly with quality control, which we fail, on the whole, to police adequately.

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By User deleted
06th Sep 2008 22:47

Lancs Accountant
I think you miss the point!

We do not want compensation Per Se.

We do want HMRC to get it right first time, without losing paperwork, and to not be (so) incompetent.

The concensus seems to be that if they were financially responsible for mistakes through negligence and incompetence (as we are) they may stop making them.

We can then concentrate on being pro-active for our clients and not re-active to HMRC blunders.

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By milseadas
06th Sep 2008 12:52

Overdue
Excellent item. Where HMRC cause problems via incompetence and errors they should be held accountable and pay up at the appropriate rate. Sauce for the goose?

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By User deleted
05th Sep 2008 21:10

Client Perception and HMRC blunders
Don't most accountants cost into their rates the time for dealing with HMRC at various levels anyway? It should be seen, at the moment (rigthly or wrongly) as all grist to the, overall and inevitable, mill like the office rent and the phone bill. It is, after all, nothing new.

Perhaps most of the leg work in these HMRC 'paper trails' is undertaken by a junior on a training scheme with a government subsidised wage anyway?

Maybe compensation would add to the coffers of accountants but at whose cost?

For me, a small sole practice, it is the loss of credibily with the client that really hurts when HMRC mess up. Even when HMRC are clearly at fault they seem to accept responsibility, 'hold their hand up', and inform the client accordingly.

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By lawmaniz
05th Sep 2008 18:53

Compensation from HMRC.
A common law system already exists. Those who have suffered a financial loss caused by HMRC can make a claim to the Courts for either negligence or misconduct in a public office. It costs HMRC (and any other government department) thousands of Pounds to defend claims of this kind so government departments have an incentive to settle reasonable claims. However,a statutory scheme would ensure consistency and certainty as well providing a quicker way of settling claims.

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By kcpathome
05th Sep 2008 17:31

Fully Agree
As a business man I have had to spend much of my time dealing with HMRC faults. They include everything from loss of data to writing to an employee of my company telling him that the company owed tax and national insurance, this they admitted was totally wrong. The last one got me so stressed that I ended up in hospital. I Have colleagues in the payroll business that have had in the recent past to supply paper copies of hundreds of year end P14's because HMRC had lost their year end files. Penalties must work both ways, every time HMRC talks to us it informs us of the penalties that they can levy, perhaps they would take more care if there was an automatic system to levy penalties against them. One wonders if they would pay out more than they collect in penalties.

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By jonnyd
05th Sep 2008 16:16

COMPENSATION
What about dragging HMRC kicking and screaming inti the real commercial world by demanding compensation for every frivolous enquiry issued with the sole intention to delay tax repayments (to save their empty coffers). This deliberate policy and subsequent slow motion administration would be stopped if the Taxpayer had the right to claim the real opportunity loss from not having access to these funds. Think of the time value of money plus compound interest to start with!
All in favour of a petition to Number 10 but do you seriously think the present incumbent would listen?

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By ralarsen
05th Sep 2008 15:54

VAT errors
What a great idea.

I've just spent 2 days dealing with a group VAT registration, because HMRC registered it as a single company.

At first they denied it should have been a group registration and then when they finally looked up the forms realised I had ticked the box.

Their mistake so they will deal with the rectification.

No to add insult to injury they have lost the VAT50 and VAT51 which were sent in and need a new one.

So back to the client for signature who now thinks I am incompetent and can't understand why he can no longer use the VAT number issued to him.

2 weeks down the line I am still waiting for the new VAT registratino, but I guess more phonecalls are required before they can work out how to deal with it.

Added to that I cannot use the online authorisation system for another client as apparently he is dormant although the CT41g was sent in 4 weeks ago, with another one which has been processed.

I'm sure my workload would halve if HMRC changed their attitude and had to pay us for their errors more frequently.

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By AnonymousUser
05th Sep 2008 15:35

HMRC errors
My main gripe is the need to invoice the client for our unnecessary fees and then to ask HMRC to reimburse the client direct. Why cannot we just invoice direct?

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By mdoussot
05th Sep 2008 15:04

compensation to Taxpayers
I entirely agreed that a scale charge system should be emplemented to compensate Tax payers for errors or mistakes made by HMRC.

I have just received a number of updated tax codes notices due to the increases in allowances due this month and guess what I am going to write or phone again to have the undesirable other income (letting, interest etc..) removed which I already have had removed from the previous versions...

what about the tax codes issued to include expenses reimbursed as declared on form P11d and where HMRC have ignored the S336 claim submitted at the same time? another phone call, another letter. while we are trying to get dispensations put in place for most clients which would solve the problem, some can't get them and I am tired of getting phone calls from clients who blame me for HMRC' failures.

But one of the worse case I know relates to student loan deductions. I know one person who for the last 18 months has been trying to get HMRC to notify his employer to stop the deductions. HMRC blames the student loan people and vice versa and meanwhile the deductions continue at a rate of £150 to £200 per month. I have done a recent reconciliation of the overpayment but I had discovered back in February last year that the loan had been repaid before the end of April 2006..... This is so frustrating... student loan keeps asking for the same information time and time again but no action is taken.

Tax credits is another matter, I can't recall the number of letters we have sent which have been ignored, unanswered or apparently never received.

The whole system is a shamble. I have just listened to a podcast from HMRC about improving HMRC vs Agents relations. It all sounds well and good but in reality until they replace the untrained hired help with people who know what their doing and care about their jobs we won't get anywhere.

Nicola you have my 100% support to what you are doing. Good Luck
and thank you for your effort.
M

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By aitchsj
05th Sep 2008 14:49

Great idea - how about a petition to number 10?
I think it is only equitable that penalties should apply to HMRC as they do to the taxpayer. Penalties might actually help HMRC to realise the extent of the chaos in which they now operate and rectify the matter. A commercial organisation would not survive with such appalling levels of inefficiency and HMRC only get away with it because their mistakes are not measured.

Why not post it as a subject on which to petition Number 10. The government is supposed to be keen to listen to "the people" so give it a go.

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By sally1964
05th Sep 2008 14:33

burden of proof
Totally agree with your comments but the burden of proof that we sent 64/8 will be left to us so unless we send everything Guaranteed Delviery they will say they never recieved it.

Perhaps we should all save our post for HMRC and post GND once a month!

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By mipper
04th Sep 2008 16:40

HMRC penalties - simple
Not that I'm still frustrated

Lost 64-8 = Hanging

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By User deleted
04th Sep 2008 15:54

Fair point,
it seems perfectly equitable that compensation such increase for each month that the problem persists.

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By User deleted
04th Sep 2008 14:24

Monthly penalties
Certainly Nichola, 64-8's and any other lost forms. In fact, monthly penalties are a very good idea because then we can leave it 11 months and send a penalty/claim for £1500.

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By User deleted
04th Sep 2008 14:20

Agreed OGA
You're spot on re. 'opting in'. Considering the client is undertaking the burden of Self Assessing and are under threat of penalties, the least we ask is the ability to opt IN to a further tax collection process; namely PAYE, should they so wish it.

My view is that the payment on account system takes care of estimates for later years (Estimated Assessments) and Revenue officers should not touch any code number already under SA. Too many cooks and all that.

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By User deleted
04th Sep 2008 12:23

64-8s?
Don - liked your suggestions, but how much for a lost 64-8? Do you think that these should attract compensation at a higher rate. After all, the minimum that a lost one will take is a couple of phone calls (HMRC and client), a letter/client meeting to perhaps sign another, another letter to HMRC, and perhaps a bit more dallying online.

I would suggest on tax managers rates £150 per form.


More suggestions needed; and I will compile a table.

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By User deleted
04th Sep 2008 10:42

Tim
Thats all very well if you have submitted a 2008 Tax Return (which you still have 5 months to file). It is confusing as it's all opt outs anyway:

"If you owe tax for 2007-08 and have a PAYE tax code, we
will try to collect the tax due (up to £2,000) through your
tax code for 2009-10, unless you put ‘X’ in the box"

"If you are likely to owe tax for 2008-09 on income other
than employed earnings or pensions, and you do not want us
to use your 2008-09 PAYE tax code to collect that tax during the year, put ‘X’ in the box - read page TRG 18 of the guide"

They don't say we will knock a speculative £10K investment income off your tax code because we're skint and know better than you how your money should be spent, they could at least say "if you don't put a cross in this box please estimate what this income is expected to be" ( like Joe Public's going to have any investment income in 2008/09 anyway!).

IMO any option clauses should always be opt in not opt out by law, then there is consistency and understanding. It is after all more natural to mark a box to say you want something, rather than vice versa. that is how most people get caught up in sharp practice and onerous contracts in the first place. (If you buy a car, you start off with the basic model and add the extra's you want and that is how it should be).

As an aside, if HMRC can tax you on your bank interest received, why can't you get a deduction for debit interest if you have to go overdrawn to pay your tax bill? - LOL

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By User deleted
04th Sep 2008 10:17

Agreed OGA
except they do ask first in Self Assessment cases. The tick boxes are rather curious on TR5Q2. They seem to ask virtually the same thing three times, so it is no wonder that Revenue staff get it wrong sometimes.

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By AnonymousUser
03rd Sep 2008 18:59

HMRC compensation
I think having some form of compensation agreement with HMRC is an excellent idea.
It's not fair that the client should foot the bill for HMRC's incompetence, nor is it fair that we do their work for them for nothing.
Bring it on!

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By User deleted
03rd Sep 2008 17:02

Tax Codes
We must include a penalty for putting items on the tax code without asking first.

I am prompted to this as they new wave of [***] up correcting tax codes have started a new round of "please take my clients investment income off his tax code, in the current climate he would prefer to pay his own mortgage rather than someone else's!"

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By User deleted
03rd Sep 2008 14:34

ok, i'll start the ball rolling
I don't always think partner's rates are applicable but feel free to contradict. A lot of the difficulty is proving the event took place and therefore we would have to pay for proof of posting and keep all printouts, submission ID's etc.

£25 per letter unanswered within say 60 days and each 30 days thereafter
£50 for each instance of online registration or filing errors. This could mount up.
£50 for incorrect code notices.
£75 for error on statement of account.
£75 not giving the online filing incentive.
£75 for issuing duplicate UTR
£100 for lost SA100, SA800, R40 returns
£100 for dealing with incorrect penalty notices where tax overpaid or return actually filed on time.
£100 compensation for not showing complete calculations (especially Tax Credits) and or getting them wrong from the information provided.

I'm sure I'll have forgotten something.

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By AnonymousUser
03rd Sep 2008 10:18

Excellent idea!
It would balance out the new penalties regime.

Now if the CIOT and/or the Tax Faculty could pick this up as a campaigning issue...

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