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Bankruptcy nightmare for payroll clerk after HMRC makes an almighty mess

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HMRC got fundamental details incorrect in a bankruptcy ruling and nearly ruined the life of an innocent payroll clerk. The overriding lesson is to get the facts right and keep copies of correspondence to provide a defence.

25th Jul 2023
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The case of Debra Elizabeth Adjei vs HM Revenue and Customs and the Insolvency service was a ruling in two parts:

  1. Was HMRC correct in issuing a bankruptcy petition to Debra Elizabeth Adjei in the first instance (ruling 22 March 2023)?
  2. Who is liable for any costs (ruling 21 April 2023, handed down at the end of June 2023)?

Part 1 is extraordinarily painful reading for anyone that worries about attention to detail, research and professionalism. Having endured part 1, part 2 is much easier to swallow, though the whole story is one with some basic takeaways for us all.

Was HMRC correct in issuing a bankruptcy petition?

HMRC presented Ms Adjei with a bankruptcy petition in February 2020 in the sum of over £100,000 partly as a result of their records showing she was an employer and a partner of the firm. Late filing penalties were also issued on the basis she had a liability to complete a self assessment tax return (which she did not).

Adjei presented evidence to HMRC that she was neither an employer nor a partner but was an employee employed under a contract of employment. Her role involved making payments of PAYE to HMRC and, possibly, these had not been paid as a result of her being on secondment away from her workplace.

HMRC, however, maintained she was an employer and a partner and, as such, was liable for the PAYE underpayments. Although, this was according to the Revenue’s own records, which could not be supported by evidence or justified.

Wisely, Adjei collated information to corroborate the facts including a copy of the partnership deed, her contract of employment and her P60s.

An appeal against the fines and penalties was filed in July 2021, acknowledged by HMRC in October who advised that the appeal could only be heard in the first tier tax tribunal. This was incorrect advice.    

Towards the end of 2021 and throughout much of 2022, HMRC and Adjei were in correspondence, with significant events taking place:

  • Trustees in bankruptcy were appointed
  • The appeal was ‘returned’ by the FTT, even though HMRC had advised this was where it should be heard
  • A staff change at HMRC resulted in them claiming to be unaware of such an appeal
  • HMRC’s debt management department failed to provide copies of the original demands/decision letters relating to the £100,000+ fine that was now at the bankruptcy stage (for Adjei who was an employee and NOT an employer or partner)
  • HMRC’s solicitors advised it was Adjei’s responsibility to obtain the demands/decision letters from HMRC and not theirs. This was described in the ruling as “unhelpful”
  • Application after application was submitted to HMRC but only the late filing penalties were addressed, which did not form the largest part of the perceived debt
  • A final admission by HMRC that Adjei was not an employer or partner, but then there was the imposition of liability to the High Income Child Benefit Charge (HICBC) for tax years 2014-2017 (even though the employee did not earn enough to have the HICBC imposed)

There are many further references to events, communication and non-communication, far exceeding the purpose of this article.

What is pertinent is the judge’s use of words to describe HMRC’s handling of events such as “muddled”, “disingenuous” and “statements that were simply untrue” and “unreliable”. 

Readers may not be surprised that HMRC relied on information that was scanned into their systems, disregarding the fact that some information had not been scanned. HMRC accepted this was “flawed” and the judge agreed their system was “undoubtedly flawed”.

In short, the judge dismissed the bankruptcy petition case, as it was not due!

Who is liable for any costs

This part is far less excruciatingly-painful and is embarrassing reading for HMRC. Adjei was not held to be totally blameless, partly because she did not take professional advice soon enough and partly because she did not provide evidence at an earlier stage. 

She had to meet her own costs, but HMRC not only had to meet their costs but also the costs of the Official Receiver and the costs incurred as a result of the bankruptcy petition (which was never due).

The moral of the story

Even though the judge ruled HMRC had been at fault and reliant on flawed systems, it is, perhaps, strange they said the starting point for accuracy should have been with the Revenue and not Adjei. We know such a comment is not going to change reality and HMRC will always believe it is right. 

So, on the assumption they are acting compliantly in the first place, the only thing employers and individuals can do is to put themselves in a defensive position, ie, defending themselves against possible HMRC action in the future. 

That is not the position we should have to find ourselves in, nor is it one we want to be in. However, it‘s all about retaining documents together with timely and accurate communication. As Adjei found to her cost, it's also about recognising when professional advice is needed.

This is an uncomfortable read that will not change HMRC – but employers can learn from it.

Replies (43)

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the sea otter
By memyself-eye
25th Jul 2023 17:53

maybe Nigel, the hero of the hour could be persuaded to act in future 'Coutts type', HMRC cases!

For the defence of course.

Thanks (7)
Replying to memyself-eye:
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By Casterbridge Hardy LLP
26th Jul 2023 12:15

Well said.

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By Hugo Fair
25th Jul 2023 19:38

At last! HMRC have proven themselves able to lead the field and break new ground ...

"Never attribute to malice that which is adequately explained by stupidity" was my default position (whilst grinding my teeth) through many an interaction with them.

But they've obviously now set their sights much higher and are aiming for pure malice, with no hostages allowed!

Thanks (18)
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By sammerchant
26th Jul 2023 09:41

HMRC is becoming more like a Soviet organisation than a British one.

Thanks (13)
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By JS23
26th Jul 2023 09:41

HMRC world looks like.. "the one who holds the gun and has the fire power, rules".

Thanks (12)
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By RogerMT
26th Jul 2023 09:44

I wonder what on Earth (or maybe out in the cosmos somewhere) made HMRC think she was "an employer and partner" rather than a humble employee? Staggering incompetence, followed by a Kafkaesque nightmare! Welcome to HM Revenue & Customs in the 21st century!

Thanks (6)
Replying to RogerMT:
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By mumpin
26th Jul 2023 10:28

If you google Dr Adjei, you can find one in Brentwood which isn't miles away from the practice in question.
Do you think its possible that the admin clerk is actually the doctor's wife?
I wonder why the partnership owed such a large amount of Paye.
I'm certainly not defending HMRC but its all a bit whiffy.

Thanks (3)
Replying to mumpin:
By Nick Graves
26th Jul 2023 11:52

I've had a couple of similar instances where the poor victim simply filled in an online form incorrectly - basically "Direktor" means "Manager" in certain Eastern European languages, as an example.

In another one, three partners ended up with three partnerships...not entirely sure how they achieved it.

It was all pretty easy to sort out before HMRC went full-Totalitariantard.

Doubt it would be now - especially if it takes a year for a response or they choose to lose the letter again.

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Replying to mumpin:
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By Casterbridge Hardy LLP
26th Jul 2023 12:16

True - I see no virgins here.

Thanks (2)
Replying to mumpin:
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By Open all hours
26th Jul 2023 14:43

In the real old days when there were enquiries which began with a letter, HMRC send the opening salvo to a firm with an identical name to ours. The hairdressers 20 miles away were somewhat puzzled.

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By Joe Alderson
26th Jul 2023 09:51

This type of behaviour is shocking, or at least it should be, but we're becoming used to it from HMRC these days. Jim Harra is sinking them to new depths. I have first hand experience of HMRC chasing clients for tens of thousands of pounds that have already been paid or are in the process of being paid through a settlement plan.

They've also been opening new investigations into previously resolved cases where nothing new has come to light, and they are also ignoring common sense in cases, particularly where people aren't aware enough of legislation to properly defend themselves and HMRC are opting instead to tie those people in knots to confuse them and claim they owe money that they do not.

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By Spindrifter
26th Jul 2023 09:53

What is anyone supposed to do against a giant such as HMRC when from the get go they assume that they are 100% right, simply will not listen and proceed with imposing unwarranted severe consequences on peoples lives? I have been in the position of HMRC simply dismissing me and my facts because they dont listen and dont care in the slightest. It is crazymaking

Thanks (11)
Replying to Spindrifter:
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By Heating_installer
26th Jul 2023 18:45

Unfortunately this is not the sole preserve of HMRC.

Every two months, like clockwork, I receive a fixed penalty notice from Newham council (via DVLA lookup) for parking on the pavement, the ticket, accompanied by photo evidence, is for a German HGV that has the same alpha numeric registration as my 1937 Austin 7 car.
When it began 2 years ago we used to phone, write, send photos etc. with no results, each time the matter is slated for hearing with the appeal body and then is suddenly cancelled the week before the hearing.

One day they are going to slip up and I'll get my 'day in court' - enjoyable day out but don't suppose it will stop this farce!

Thanks (1)
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By markabacus
26th Jul 2023 10:14

Would our clients treat their 'customers' like this and stay in business?

Thanks (7)
Replying to markabacus:
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By Open all hours
26th Jul 2023 14:47

How long would Jim Harra last in your organisation?

Thanks (1)
Replying to Open all hours:
boxfile
By spilly
29th Jul 2023 17:04

I wouldn’t trust him to make the tea, let alone open the post.

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By coleprice
26th Jul 2023 10:16

Truly a new low on the plummeting graph of HMRC's incompetence. A time was when one phone call would have resolved the initial confusion that set in motion this train of horror. Now, the phone isn't answered; if it is, nine times out of ten at the other end is someone with lamentable training/knowledge of their own system; there's no one to take any responsibility anyway; their records are junk; simple courtesy has been replaced by the blinkered bully boy tactics of totalitarian regimes. Just ghastly.

Thanks (14)
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By Ammie
26th Jul 2023 10:29

Let this be a lesson on over reliance on digital systems without adequate controls.

This case also proves how poor HMRC are, particularly in failing to adequately prepare their case before pressing on with proceedings and how their reliance on systems, as with many others, has been normalised and accepted as faultless.

What must be remembered is that all systems are only as good as the humans managing them.

Thanks (4)
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By AndrewV12
26th Jul 2023 10:55

'HMRC presented Ms Adjei with a bankruptcy petition in February 2020 in the sum of over £100,000 partly as a result of their records showing she was an employer and a partner of the firm. Late filing penalties were also issued on the basis she had a liability to complete a self assessment tax return (which she did not).'

This is a tricky one , why was the £100,000 owed, its a lot of money, though knowing HMRC they would settle for £4,000 if Ms Adjei had not stood her ground and won her case.

Thanks (0)
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By Justin Bryant
26th Jul 2023 11:04
Thanks (3)
Replying to Justin Bryant:
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By Justin Bryant
26th Jul 2023 13:13

It's basically the worse than useless state justice system overall, that can of course lead to much worse. See: https://www.bbc.co.uk/news/uk-england-manchester-66302740

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By johnjenkins
26th Jul 2023 12:03

The judge was wrong in not allowing Ms Adjei's costs to be paid by HMRC. It was a matter of "fact" that she wasn't an employer or partner, even if she was the Doctor's wife.

Thanks (3)
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By rememberscarborough
26th Jul 2023 12:14

I used to know an old bloke who remained a labourer all his life and point blank refused to sign any delivery notes in case he was held responsible for something going wrong. Seems to me that his "paranoia" might be the most sensible option if you might possibly come in to contact with HMRC....

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By flightdeck
26th Jul 2023 13:51

Why is Jim Harra still in a job?

Thanks (1)
Replying to flightdeck:
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By johnjenkins
26th Jul 2023 14:21

Cos Nigel hasn't had a go at him yet.

Thanks (1)
Replying to flightdeck:
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By djtax
27th Jul 2023 10:37

.....waiting until he is nominated for the usual gong for such sterling public service....

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Replying to djtax:
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By flightdeck
27th Jul 2023 13:54

True, it's always tea and medals in the public sector

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Routemaster image
By tom123
26th Jul 2023 13:52

Post Office / Horizon - all over again.

Thanks (5)
Replying to tom123:
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By johnjenkins
26th Jul 2023 14:19

Banks / Accounts.
The list is endless.
Why should we pay higher power bills and then the Government give us some back. Just charge us less so no "excess profits", no "windfall tax" and no government handouts.
Unfortunately large concerns and that includes HMRC can virtually do what they like. It takes someone like Nigel to say it as it is.

Thanks (1)
Replying to johnjenkins:
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By RogerMT
26th Jul 2023 15:03

I wouldn't thank that garullous troublemaking windbag for anything, he's done enough damage already. Couldn't have happened to a "nicer" fella!

Thanks (4)
Replying to RogerMT:
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By johnjenkins
26th Jul 2023 15:23

People who get things done, (Maggie, Tony, Donald, Boris, Nigel, to name but a few) are either loved or hated. Mikhail Gorbachev, probably one of the most loved politicians in the West, but hated by many in Russia.

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Replying to RogerMT:
JD Portrait
By John Downes
26th Jul 2023 17:47

Quite contemptible.

Thanks (1)
Replying to John Downes:
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By paulwakefield1
27th Jul 2023 08:07

You're not condemning someone for their views are you? A bit like the banks then....

Thanks (1)
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By Catherine Newman
26th Jul 2023 15:46

I have a compliance case where they are pursuing an insolvent Estate for the loan charge and the Director/husband committed suicide in 2019 with no prior signs of anything like it about to happen. The Company was compulsorily struck off. I have already filed a complaint but they have "correctly followed procedures and it takes time to investigate it"-investigate what?

When I looked last week the non-existent "liability" has run up over £11K of interest. No wonder the tax gap is so high if this is anything to go by. The Treasury shouldn't trust any of the figures fed into it by HMRC.

This has spurred me on to put in a complaint to a certain email address right now.

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Replying to Catherine Newman:
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By Catherine Newman
26th Jul 2023 16:41

Email now at Harra HQ! They are pursuing around £160K. I have put they will get £0.

Thanks (1)
Replying to Catherine Newman:
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By sammerchant
02nd Aug 2023 16:48

I find the best way to get swift action is to summarise your complaint and send it to the Shadow Chancellor's office. They are always willing to take up the cudgels on your behalf, at least while they are in opposition!

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By Catherine Newman
26th Jul 2023 17:20

What I don't understand is why didn't the partners jump in and back her up-just saying??

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Replying to Catherine Newman:
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By mumpin
26th Jul 2023 19:36

Because they've spent the £100k on something else?

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By JackH
27th Jul 2023 09:51

The Chekists at HMRC should stop Harra-ssing taxpayers. Wait for the new disaster about to happen following a deluge of wrong Simple Assessments and "no need to complete a SA return" letters as the frozen PA and steep rise in interest rates produces droves of former non-taxpayers liable to interest and penalties. Expect a new collection system for HMRC being able to debit our bank accounts remotely with their estimate of our liability. Isn't Digital by Default wonderful?

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By JackH
27th Jul 2023 09:57

Policy paper
HMRC professional standards for compliance
Published 27 July 2023 https://www.gov.uk/government/publications/professional-standards-for-hm...

Just arrived in my inbox. A compendium of bogus piety and calculated misinformation

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Replying to JackH:
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By Catherine Newman
27th Jul 2023 14:53

This is very interesting. The way my client has been treated isn't met by any of these standards.

I have another one but this time it is IR35. HMRC have a bee in their bonnet that an accountancy practice were doing more than providing accounting and tax services alleging that the practice were actively managing my client company and HMRC have said they will only settle when they have taken a test case to Court. My argument is that the Director is in his 70s, was closing the company anyway and there was £300 in the bank.

This Charter statement says they will take into consideration whether it is worth pursuing the compliance check and conclude on a timely basis. How does waiting for a test Court hearing stack up with the time taken to get it to Court and judging by this latest botched case could easily be botched.

In the cases of IR35 and the loan charge the compliance is ordered at the hands of the Treasury.

I contacted the compliance officer of my loan charge case and this was before I saw the Charter Statement and I just got that the officer had to reach out to other areas of HMRC. I pointed out that there is no further to reach out to as Jim Harra is the CEO of HMRC. I still got "I hope to let you know in the next few weeks!"

HMRC should invest their resources in proper IT-bringing transactions into real time, getting things right.

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By markabacus
27th Jul 2023 19:55

Technically nothing to do with this thread as such but I only viewed and read it. Then replied to another thread opting for Daily feedback. Currently getting emails at least once an hour but about this thread!
Opting to None on this reply in the hope they stop. Is there a system issue?

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Replying to markabacus:
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By johnjenkins
28th Jul 2023 10:04

Come on Mark, this is the age of high tech. Get with the programm.

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