Judge pans HMRC's unreasonable conduct
The behaviour of HMRC officers was strongly criticised by the judge in a first-tier tribunal case that concerned VAT and penalties amounting to less than £900.
The judge's decision in Gekko & Company Ltd v HMRC (TC06029) starts like this:
"This was the hearing of four appeals by Gekko & Company Ltd (the appellant) against an assessment to value added tax (VAT) of £69 (sixty-nine pounds) and against three assessments of a penalty under paragraph 1 Schedule 24 Finance Act (FA) 2007 of £780, £8.85 (eight pounds eighty-five pence) and £10.35 (ten pounds thirty five pence) respectively.
We have put the amounts in words in the last paragraph to make it clear that there is no typographical error in setting out the amounts in dispute. This decision is a great deal longer than we would ordinarily write in a case involving such small amounts: this is because there are a number of disturbing features about the way the case has been conducted by the respondents (HMRC)."
The company is a property developer, based in Boston, Lincs. It made some errors on its VAT returns. The largest was around £5,000, which was output tax omitted on the sale of an opted property. The other amounts were £59, for non-deductible input tax, and £88, in relation to fuel.
The decision describes the sorry saga of poor explanation by HMRC, changes of opinions, re-issuing of assessments and so on. Errors were made in explaining the reasons for the assessments, the bases for penalties, and rules relating to suspension of penalties. The officer seems to have largely cut-and-pasted HMRC material into her correspondence, without actually thinking about it.
The judge was scathing throughout his decision about the quality of the HMRC officers’ enquiry work, and cancelled the VAT due of £69 and all of the penalties.
The final section of the decision explains why the tribunal considered it appropriate to make an order for costs against HMRC. This is rare in standard cases. This includes an explanation of HMRC’s Litigation and Settlement Strategy (LSS). The tribunal bluntly stated that HMRC failed to abide by the LSS, which constituted unreasonable conduct; hence the award of costs.
Comment: I frequently deal with taxpayers in dispute with HMRC. The quality of work is frequently poor. HMRC officers do not take the time to explain to taxpayers and their advisers their concerns. Often compliance visits end with ‘everything is in order,’ only to be followed by substantial assessments and penalties. Reviews have become a rubber-stamping of officers’ decisions, leaving taxpayers with the unenviable decision to go to appeal.
HMRC, it’s not good enough!
As the judge concluded; “[HMRC]… should have asked themselves whether it was proper for a department that prides itself on its dispute governance procedures to continue to defend these proceedings and should have come to the view that it shouldn’t.”
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Hi, I am a VAT Consultant, part of the team at vatadvice.org We are based in Cambridgeshire. We work largely with charities but also advise a range of commercial organisations.
I have over 30 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.