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Newth Talks Tax - Self assessment penalties

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26th Nov 2007
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Self assessment penalties

Paul disclosed that he had received five late self assessment return penalty notices for clients, in his query of 8 March 2007. In each case the return had been delivered by hand to an HMRC office and (amazingly) the revenue receptionist had date-stamped the list. There is therefore proof that the returns were filed on time. Driscoll explained a similar experience, but in his case 60 returns were involved. Despite HMRC receipts, all 60 clients received penalty notices.

Paul asked how much he could charge HMRC for writing to the HMRC office to point out the error in each case, and also placating each individual client. In the past he had not attempted to do this.

Lesley Hughes considered that there was no chance of HMRC paying any recompense. Personally, she wouldn’t hand returns over the counter at an HMRC office, as the returns probably bypass the central processing system and then end up in someone’s in-tray.

Tony Kelly was more positive and suggested that HMRC should be charged £100 for each incorrectly issued penalty notice. An invoice should be sent to the office where the returns were handed in. The invoice should be addressed to the accounts department of HMRC, and if payment is not received within 30 days then legal action should be taken. If judgment is determined against HMRC the bailiffs can then remove their computers, furniture etc.

Andrew suggested the radical step of reproducing the penalty notices and HMRC receipts on a website.

I admire Tony’s stance, but fear that at least some of it will not work. Readers Digest of August 2007 carried an article by a barrister in the ‘That’s Outrageous’ series to the effect that one cannot sue HMRC. This has caused immense resentment, loss and even worse in cases far bigger than outlined in this query, where taxpayers have lost thousands of pounds and even become bankrupt due to HMRC maladministration. Members will have to judge for themselves whether the law is set far too much in favour of HMRC. The only remedy to this situation is for Parliament to enact a law so that taxpayers are able to sue HMRC. Some hope has arisen following the decision in the recent case of Neil Martin Ltd v HMRC, but we will have to wait and see whether that case was peculiar to its own facts, whether it will be appealed by HMRC and whether the decision is of general application.

Having said that, I think that the first part of Tony’s advice could work. Sending a fee of £100 for each incorrectly issued penalty notice to HMRC might just succeed. A wise office manager might take the view that paying up would be better than facing some long drawn out complaints procedure. Bob disclosed that he charged the client £50 or £100 according to the work involved and then sent the receipted accounts to HMRC in accordance with the COP1 procedure. HMRC then reimbursed the client. IRH also had a successful claim in respect of a lot of invalid penalties, and the firm obtained costs of £500 from HMRC. The correct procedure is probably to appeal the penalty notices, then bill the client and send the receipted fee notes to HMRC. In some cases HMRC appear to have paid the adviser direct, which is far simpler.

This brings me to the current HMRC complaints procedures. In theory one should protest initially to the HMRC office where the error occurred. If satisfaction is not obtained, then the complaint should continue and be made to the local HMRC area manager. Failing satisfaction there, application can then be made to the Adjudicator and/or Parliamentary Commissioner (Ombudsman), but complaints that have already been considered by the Ombudsman cannot then be considered by the Adjudicator. Both the Adjudicator and Ombudsman can recommend payment of the adviser’s fees and a consolatory payment to the taxpayer, but the maximum consolatory payment is extremely modest. Hence the need for taxpayers to have the facility to sue HMRC.

Apart from the fact that complaints to the Adjudicator and Ombudsman involve a long-winded and costly process (particularly if the taxpayer does not win), this procedure is not suitable for a small matter like the one outlined in this query. This does not relieve the frustration of advisers such as Paul, who are faced with relatively small issues of HMRC maladministration.

Finally, Dean Shepherd assumed that Paul now filed online!

Newth Talks Tax Archive

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By User deleted
27th Nov 2007 12:22

TR penalties - compensation
We have suffered from incorrect penalties in the past. We simply calculated an approximate cost to the firm of dealing with them and wrote to the Area Controller to request compensation. We confirmed that we had only charged them for the penalties issued in error and it was soon agreed and paid.

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By Andy Reeves
28th Nov 2007 17:11

Let's think this through shall we?
Whilst I can appreciate the frustration in having to deal with incorrect penalty notices, I think we need to be careful before demanding the right to sue HMRC for the time costs spent in rectifying matters.

Surely, if this were to be allowed, then in the interests of fairness, HMRC should also be able to sue accountants and/or clients for their costs of sorting out our errors. Can we all honestly say that everything that we have ever submitted to HMRC is perfect and that they have never had to correct anything?

I also think it is a bit rich of the barrister to complain that HMRC cannot be sued for, if my memory serves me correctly, until very recently a barrister could not be sued for giving an incorrect opinion.

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By User deleted
28th Nov 2007 22:54

Automatic Penalties
What we're all against here is the indiscriminate issue of computer generated penalty notices. Whether it be PAYE, SA or other penalties, it is obvious that an inordinate number of them are simply bringing the Revenue into disrepute. As if they needed bad publicity.

If HMR&C are to be endowed with some of these draconian powers, (I'm quaking in my boots at the CIS penalty regime) then they need to be considered intelligently.

EG. if the Revenue allow 3 or 9 months to go by without so much as a reminder issued to the miscreant, then the Officer should only authorise one months worth; £100.

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