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It’s time for HMRC to behave like grown-ups

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Instead of pursuing pointless penalties, HMRC should do the mature thing and use its resources to educate and help taxpayers.

4th Aug 2022
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The recent tribunal decision in the case of Quayviews Ltd showed again that HMRC seems to have no effective internal mechanism for resolving what are by and large low-value penalty-related disputes. The taxpayer had previously incurred late filing penalties and to avoid further such penalties the company filed its real time information (RTI) returns early, unaware that filing too early would itself attract penalties. Many have questioned how it reached the tribunal stage, and it is a good question. 

Depressingly, in recent years, it is not a new question. We have seen far too many Quayviews, where scathing criticism of HMRC has come from tribunal judges. Ten years ago, in the case of Nicholas Deluca (TC01422), HMRC pursued the wrong taxpayer, an action described by the judge as “unreasonable in the extreme”. Then there was the case of Dr Pandey (TC05706) where Judge Richard Thomas started his judgment with: “Well, here we go again.” He added that HMRC’s behaviour was “unreasonable and the case should never have come before the tribunal”. There have been numerous others. 

Utterly hopeless case

It is perhaps inevitable that at some point every HMRC officer will encounter a situation where, no matter how lacking in merit the taxpayer’s case may be or how much the officer tries to accommodate the taxpayer’s representations, no agreement can be reached. I recall from my own time, Mr Whitehouse who pursued his appeal all the way to the Court of Appeal, losing at every stage with an utterly hopeless case. Much of the time a taxpayer can be forgiven for this since the cost of any settlement is very personal to them and more experienced HMRC officers learn to recognise (or should do) those cases where it is simply a delaying tactic.

Such considerations do not apply to HMRC and today far too many taxpayers are faced with a punitive HMRC intent on charging penalties seemingly no matter how reasonably the taxpayer has acted or how unfortunate the circumstances of the case might be. The latter is even more concerning. In recent years we have seen tribunals reject penalties in cases involving individuals who were homeless, suffering from mental illness and disability. 

Reasonable excuses

Tribunals have also had to push HMRC back on what “reasonable excuse” includes, and when the “special circumstances” reduction applies. HMRC took away “equitable liability” and replaced it with “special relief”.

Some years ago, while I was assisting a Tax Help client, HMRC first insisted that they could only give any relief if a special relief claim was made. As soon as the claim was made HMRC tried to refuse it even though they knew the tax was not due. This would be concerning enough where the taxpayer was at fault but here it was a bad case of HMRC’s own making. 

Time to grow up

Some growing up is required on the part of HMRC. It should see every penalty case that comes to tribunal as a failure. As former HMRC Permanent Secretary for Tax Dave Hartnett used to say about tax avoidance: “Just because you can, does not mean you should”. 

It is no answer to a taxpayer who, while walking to the post box is involved in an accident, hospitalised and so misses the filing date, that he should have posted his tax return earlier. 

In my experience, the positive effect of a taxpayer concluding an interaction with HMRC feeling that they had been listened to, given a fair hearing and helped to understand how to get it right in future outweighs any deterrent effect of HMRC charging a penalty. And this is true even if in the end some penalty is still charged. 

In my view any deterrence is only effective against deliberate behaviour and even there its effect is doubtful. Deterrence is of no value whatsoever to the tens of thousands of taxpayers who, for as many diverse reasons, fall foul of the “rules” every year.

Emphasis on penalties

Today, with the huge HMRC emphasis on penalties, falling foul of those rules can be very costly. In the past penalties for “administrative failings” were generally much lower, making resolving them easier. This combination of much higher penalties and an increased determination to impose them has contributed to HMRC’s seeming inability to resolve them. And to add to the problem there is the cost to us.

Even if HMRC had won, it would still have cost the taxpayer because penalties do not pay for the work involved. HMRC needs an approach that recognises compliance is difficult and can be very costly. There should be a general penalty waiver for all one-off (non-deliberate) errors and instead HMRC should use the resources it deploys pursuing pointless penalties to educate and provide help to taxpayers. 

Otherwise, it is only a matter of time before another tribunal judge says: “Well, here we go again!”

Replies (33)

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Tornado
By Tornado
04th Aug 2022 16:41

'Depressingly, in recent years, it is not a new question. We have seen far too many Quayviews, where scathing criticism of HMRC has come from tribunal judges'

I think the answer to this is that HMRC have grown increasingly arrogant in the last few years and have become more incompetent at the same time, the arrogance making it impossible for them to even consider that they are incompetent.

The arrogance also makes it impossible for them to respect the law, after all, they know best don't they?

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Replying to Tornado:
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By Hugo Fair
04th Aug 2022 17:35

It's no wonder that HMRC believe every taxpayer starts from the premise of 'what can I get away with this time' ... since that's the very attitude that they bring to the table in all these cases.
Maybe they should take a look in the mirror and observe what arrogance really looks like in a dept that appears to believe that they are not subject to the law.

And yet they continue (quite deliberately) to use the descriptor 'evasion' when pronouncing on any 'avoidance' activity ... and seem confounded when taxpayers reflect HMRC's own behaviour.

HMRC have become their own worst enemy - which is saying something given the competition for that accolade!

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Replying to Hugo Fair:
Tornado
By Tornado
04th Aug 2022 17:52

The difference between HMRC and the Taxpayer is usually that HMRC are a faceless organisation where no individual is required to accept responsibility for anything whereas the Taxpayer is often an individual who has no facade to hide behind and has to take whatever is thrown at them.

Thank goodness for the Courts.

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By Paul Crowley
04th Aug 2022 20:09

'It’s time for HMRC to behave like grown-ups'
Hush now
Otherwise HMRC will run to the corner, stamp their feet, and shout 'it's just not fair'

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By anthony stevens
05th Aug 2022 09:48

It's ok MTD will solve all these issues! LOL.

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By Self-Employed and Happy
05th Aug 2022 09:51

I'm not sure how they can educate and help when they simply don't have enough staff, enough trained staff, the systems are completely inefficient and not fit for purpose.

It needs an MP to be responsible for it, them to be answerable and for it to be run by Accountants not some offshoot of the political machine.

HMRC is needlessly difficult to deal with and to try and understand.

How it is acceptable to say "there is a 12 month estimated response date" to an issue then hammer people for responses within short time frames is mind boggling.

They have absolutely no direction, no leadership and have become a drain on the publics time (as well as agents), HMRC needs a complete overhaul from top to bottom.

The "Office of Tax Simplification" needs shutting down as they are another useless Quango with absolutely no useful input / prevention of these crazy political ideas to get people using software that have no need for it.

HMRC is a mess and people are just fed up having to deal with them.

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By mkowl
05th Aug 2022 09:54

Crikey you will be expecting politicians to be competent next and on this planet. Rishi and Liz ably demonstrating neither of these traits.

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By Brightster
05th Aug 2022 09:56

HMRC have (incorrectly) issued an assessment for wrongly claimed SEISS. I rang the number on the letter on behalf of the client who is incapacitated and the officer refused point blank to speak to me despite having a 64-8 in place and despite the issue being about the completion of the self-employment section of the tax return. His argument was that 'SEISS could only be claimed by the taxpayer'. He was WFH so couldn't put me through to a manager and was immovable that only the taxpayer could ring up to discuss the assessment. I could hear the smirk down the phone and that he was enjoying 'computer says no' attitude. I've written to them and are scheduled to receive a reply in 3 months time. Now the client is incorrectly getting penalties, which we have to appeal as well. Common sense and HMRC should never appear in the same sentence!

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Replying to Brightster:
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By zahzah
05th Aug 2022 10:57

I have had exactly the same issue. The agent helpline put me through to SEISS who refused to speak to me, back to the agent helpline who have put a note on the system for SEISS that there is no claim error. Now anticipating that there will be further letters and penalties that we will need to appeal!

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Replying to zahzah:
Head of woman
By Rebecca Cave
07th Aug 2022 10:49

HMRC does not recognise the 64-8 as agent authority for questions about SEISS grant applications, see: https://www.accountingweb.co.uk/tax/business-tax/why-wont-hmrc-talk-to-you
But HMRC offices should talk to agents about SEISS figures on tax returns, where authority to deal with income tax is in place. If HMRC has altered a figure on a tax return to include /amend a SEISS figure they should talk to the agent.

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Replying to Rebecca Cave:
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By gillybean04
09th Aug 2022 22:05

I've had a few thoughts (dangerous concept) after reading your post.

I suppose that the grants are not actually tax, just taxable. So the application and payment of the grant would not be covered by tax agent authority. But the taxation of them is.

If some other department (such as dwp or the treasury) had been responsible for the grant applications, it would have made it clearer I think. The fact it was hmrc and the grants were taxable income based on previous tax returns seems to have muddied waters over why they wouldn't involve agents in the application. At least for me. Until reading your post that is.

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By Anthony G Thorne
05th Aug 2022 09:59

The former HMRC Permanent Secretary for Tax Dave Hartnett stated that is impossible for any one person to understand the whole of the UK tax system therefore if correct then it is immoral to impose a penalty if you get it wrong.

What is required is root and branch reform of the tax system to make it understandable by all and remember the KISS principal "Keep it simple stupid".

If they wish MTD to work then they need to do this first.

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By JustAnotherUser
05th Aug 2022 10:18

Stop blaming a government entity with 66,000 employees. Start naming names, these people love to hide the dirt and screw ups under the HMRC name and avoid accountability. For politicians and senior government officials, their name is their brand and reputation, you wont see any change until the pain tax payers have to go through starts being linked to them directly and impacting their own brands and reputation.

HMRC pursued the wrong taxpayer… no, someone within the HMRC did this, they made a choice, and it was the wrong one, who was it? Who is the department head?

He added that HMRC’s behaviour was “unreasonable and the case should never have come before the tribunal” .. who’s behaviour was it?

As former HMRC Permanent Secretary for Tax Dave Hartnett used to say… ok, a name, but former.

If every article on MTD was titled ‘Jim Harras’ MTD or ‘Giles McCallum’s MTD, I guarantee any response will be much better than just blaming HMRC.

We blame Mike Ashley for Sports Direct screw ups, Elon for Tesla, Boris for the Tories…why should HMRC get away with it?

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Replying to JustAnotherUser:
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By JustAnotherUser
05th Aug 2022 10:26

https://www.gov.uk/government/people/alan-evans

Alan Evans was appointed General Counsel and Solicitor for HM Revenue
-Responsible for carrying out the department’s civil litigation

For this case it was Mrs E Edley, litigator of HM revenue and customers solicitors office

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Replying to JustAnotherUser:
By Nick Graves
05th Aug 2022 12:43

Hereinafter referred to as Jim Harassment and Giles McCulprit.

I never realised The Brittas Empire was a documentary.

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By fozia
05th Aug 2022 10:49

And while they are growing up, they need to start replying to queries / post within acceptable time limits, answer phones within reasonable time limits, repay tax refunds within promised time frames and the list goes on....

If tax payers are their customers they have a duty of care towards them and expecting everyone to submit things "real time" is unfair given their own sense of time is so skewed.

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By Andrew Griffin
05th Aug 2022 11:20

The problem is clearly one of staffing levels and more particularly skills, within HMRC.
I am retired now but recall my early days as an accountant in the late 1970s (when Inland Revenue and HM Customs & Excise were separate), when there were local tax offices with experienced staff who knew and understood the tax legislation. Now, it seems that there are just a few national offices of the combined tax authority, staffed by people who largely follow guidance provided digitally by their computer systems without any proper understanding of the legal principles or common sense.
Rather than spending over the past 20-odd years (HMRC refers to it as 'investing') shed-loads of money in IT systems that don't properly work, they should have spent on recruiting and training staff to better understand what they are doing (and why). Technology can have great benefits, but it's only a tool to be used by people who understand what it's for and have the training and experience to use it effectively.
Giving a spanner to an idiot will not by itself enable him/her/it to fix a mechanical problem!!

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Replying to Andrew Griffin:
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By leekris
05th Aug 2022 11:55

Ah the days of being able to speak to an inspector in the local tax office - it was useful and also an opportunity for an 'off-the-record' conversation which could sometimes help things along.

On one occasion the inspector gave his name (Mr. Pepper as I recall) and after a pause I said "oh D J Pepper, you're the DISTRICT Inspector ?" and he said yes, it was part of his job to take some calls as it helped him keep in touch with the real world as it were.

Arguably MTD is an example of lack of human engagement with the taxpayer being pushed to an extreme.

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Replying to leekris:
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By Beef curtains
09th Aug 2022 17:00

As in Pepper v Hart (Classics Master at Malvern College and Mastermind winner)
He was the DI at Worcester and, I think, at Evesham. I spoke to him several times. he was courteous, knowledgable and pragmatic. How I long for the days when you could call the local district, speak to an inspector and get a sensible and correct answer.

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By Justin Bryant
05th Aug 2022 11:37

But HMRC can't be totally to blame here, as they know most judges are biased in HMRC's favour which encourages HMRC to take these crazy cases in the 1st place. If we had more fair & sensible judges like RT HMRC would be discouraged from taking such cases to tribunal.

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By sammerchant
05th Aug 2022 11:54

I would be far more accepting of penalties for taxpayers if there were also penalties for HMRC - the other side of the coin.

But they want to penalise us while accepting NO responsibility for their behaviour and performance.

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Replying to sammerchant:
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By Hugo Fair
05th Aug 2022 12:17

But the penalties would have to be levied on the HMRC individual not the ephemeral body which passes the cost back to us (the body of all taxpayers).

The solution is in HMRC's hands (which is why it won't happen) ... introduce penalties on HMRC, but issued as points not pounds.
And change Jim Boy's contract, such that for every X points he loses another day of paid holiday that year + for every Y points he loses another 10% of his pension contributions for the year + for every Z points his post-employment honorific decreases another level!

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By Ajtms
05th Aug 2022 11:54

What irritates me more than anything is when HMRC issue penalties on deceased cases despite being aware of the death. These include late payment penalties where most HMRC staff are unaware that tax does not become due until 30 days after Probate is granted and do not understand that a tax return issued to the deceased after he has died is invalid until it is reissued to the executor. In so many cases that I deal with the executor is therefore unaware that a return had been unlawfully issued until the unlawful penalty notice arrives to the distress of the bereaved family. HMRC insist we prepare and lodge formal appeals and will not even consider them until the final tax return is lodged and all taxes paid. On countless occasions I remind HMRC that we should not need to make a formal appeal where HMRC have acted unlawfully, but they stick to their non-legislated rules and cost the estate unnecessary costs and delays. Why cannot HMRC put the brakes on everything on their computer when they are notified of the death. This is surely just a matter of common sense and respect and to save them work in dealing with all my complaints.

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By LAMBERTCLERICAL
05th Aug 2022 12:10

I fully agree they should drastically change their attitude. Just had a case myself - after telling my client two years ago that no further tax returns would be due, they started issuing penalties for failing to submit last year's return. Finally got it cancelled this morning, so my client pays them nothing, but then there's my fee. He's still out of pocket for THEIR [***]-up.

I DETEST their referring to us all as "customers". That term implies choice - whether or not to buy, and if so, from which supplier. If you get bad service at Tescos, there's always ASDA.

Is the alternative to "shopping" at HMRC, not shopping at all?

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Replying to LAMBERTCLERICAL:
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By Ajtms
05th Aug 2022 12:17

Yes, I agree. There is a century old saying that "The customer is always right" so if we are customers then they (HMRC) by inference are always wrong. I have not witnessed HMRC having done anything right in the last 20 years.

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By indomitable
05th Aug 2022 12:10

Good article and I think we all agree HMRC are simply not good enough - like most of the civil service now - nothing works.

And who's to blame - government of course - seem incapable of reforming any department of state.

My view is our politicians are just not up to the job. I don't think it is about money or staff shortages

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By fbdconsultancy
05th Aug 2022 12:16

I couldn't agree more, Ray. Good article.

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By Dogracer
05th Aug 2022 13:05

Personally I would like it to be made compulsory for all letters from HMRC to be signed by an individual who takes responsibility for its contents

The closing of local tax offices has not worked. I may not have always agreed with a decision from a local inspector but I respected their opinion and they were prepared to discuss a point as professionals and as equals

The computer says no approach is not an improvement

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By john corbett
05th Aug 2022 13:37

this Government are investing in HMRC so that it will collect £9 billion a year more from its compliance activities by 2014-15.
That's when it started and what better way than to increase penalties. I remember being told by our district inspector that I could not charge a 20% penalty for a deliberate omissions by an accountant on his own return and that 10% was sufficient.

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Julie Stacey
By Pingsquitch
05th Aug 2022 15:25

Here, here!! Several years ago I applied for AML registration (thinking that it was the responsible thing to do), but HMRC destroyed my cheque, saying it was not necessary. Unfortunately, I took them, at their word, but, despite submitting VAT Returns and Tax Returns for 6 clients, it took them 4 years to decide I should be registered. Apparently I should have been checking their website to see if the rules had changed (as if I had nothing else to do!) I received a penalty of £500 plus the missed years. I took this to tribunal but still had to pay, although the penalty was reduced to £100. It would not have been cost-effective to appeal, but I still think the fault was theirs.

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By twohaporth
07th Aug 2022 20:27

Obvious answer sack Jim Harra and replace him with Ray McCann.

At least it sounds as if he has that rarest of rare commodities these days - common sense.

HMRC have given up on getting tax right judging by the rubbish we receive from them so they think they can shrink the tax gap with penalties. Sometimes they can but if you fight hard enough they will give in.

MTD is purely an exercise to levy more and more penalties and we know whom it will hit hardest - the little people who struggle anyway and the elderly living off the rents from their strived for property portolio - usually a couple of terraced houses - which HMG are making more and more difficult to deal with and now HMRC are putting the boot in as well.

Easy to see why - hit the people who don't have the capacity to complain - it's easier than dealing with accountants who often understand it better than HMRC.

Send all your complaints to the Chancellor of the Exchequer then he will be swamped and might place a boot in Jim's backside to get things sorted. We need a bit of pressure from where it counts. No use thinking the professional bodies will do much as they are too interested in sounding important to get their hands dirty.

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Replying to twohaporth:
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By Justin Bryant
10th Aug 2022 09:57

A bit ironic there, as I believe RM was an ex-CIoT head.

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By JamesDS
10th Aug 2022 10:04

I'm curious as to the aim of this article, and many like it. Is it just reinforcing the echo-chamber of a supportive audience, or is there an expectation that it will result in some change in behaviour at HMRC? If the latter, what is the process by which HMRC's behaviour is changed by the industry?

I ask because even with all the kickings they've had in the last decade from FTT, the industry, LITRG, Parliament, others, they seem to be getting much worse, and the process of becoming worse seems to be accelerating.

Does a mechanism for change even exist?

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