Computer acts as the HMRC officer

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If HMRC’s computer issues a notice to file a tax return, does this satisfy the requirement that the notice must be issued “by an officer of HMRC”? Andy Keates explores a number of tax cases concerning late filing penalties that have addressed this question.

Penalty cases

Three decisions concerning this question were issued by judge Nigel Popplewell within the space of a few days. They all hinged on the same pattern of facts and he used exactly the same wording in setting out his judgments. The cases were:

In each case, the taxpayer was issued with a notice to file a tax return (TMA 1970, s 8) but failed to submit a SA return either by the deadline or several months afterwards. Penalties were charged under Finance Act 2009 Schedule 55 as follows:

  • Fixed £100 penalties under paragraph 3
  • Daily penalties totalling £900 in accordance with paragraph 4
  • Six month penalties of £300 by virtue of paragraph 5
  • Twelve month penalties of £300 under paragraph 6 (in the cases of Smith and Groves).

The taxpayers all appealed against these penalties.

Valid Notice to file?

The validity of the penalties stands or falls on whether the section 8 notice was itself validly made. If it was not, there can be no penalty for failing to comply with it. In addition, it means that any return actually filed becomes a voluntary return, with all the ramifications which I examined in my earlier article.

TMA s 8(1)(a) states that a person “may be required by a notice given to him by an officer of the board… to make and deliver to the officer, a return” (emphasis added by judge Popplewell).

The judge pointed out the difference in wording of the Schedule 55 penalty provisions, where a penalty notice can be issued if HMRC decides to do so. While he was apparently content that such wording would extend to a computerised decision on behalf of the board, he was certainly not prepared to follow that logic for section 8.

Flesh and blood

The legislation requires an action or decision by an officer of the board. As the judge said, “this is a decision by a real ‘flesh and blood’ officer, and not by HMRC as a collective body. Nor is it a computerised decision.”

To make its case, HMRC would need to provide evidence that a named officer had taken the decision to issue the notice. All HMRC was able to produce was a number of extracts from its (computerised) records. These records showed beyond any doubt that a notice was issued, but failed to give any indication of any “flesh and blood” officer on whose initiative it was issued.

Intriguingly, HMRC included copies of letters subsequently issued to the taxpayers, some of which did have officers’ signatures; others, while not signed, included the names of officers in the signature block. The computerised pro-forma letter issuing the section 8 notice didn’t even have a signature block.

Judge Popplewell commented: “I am being asked to speculate by HMRC that a notice to file was given to this appellant by an officer of the board. I am not prepared to so speculate. I cannot draw an inference that this was the case from the evidence that has been presented to me.”

As HMRC was unable to provide sufficient evidence that the notices to file tax returns were themselves valid, the judge had no hesitation in declaring the penalties for failure to comply with the notices were similarly invalid.

No human supervision

We may see more similar cases. Admittedly this is a single judge sitting at the FTT whose decisions bind no one. However, his logic is strong.

Where the legislation requires an officer to take steps, HMRC should be able to provide clear evidence that a real officer has been involved. A computer spitting out paper with no human supervision is – for the moment – simply not good enough.

In the days of paper tax assessments, before self-assessment, a tax assessment could only be issued when a tax Inspector had signed the assessment book in his district. This provided a level of accountability which parliament seems still to desire, given the use of “an officer” in TMA 1970, s 8. Is it this accountability that HMRC fears?

If HMRC cannot, or will not, take the steps necessary to ensure there is an audit trail of responsibility from HMRC Officer to the taxpayer, perhaps the government should amend TMA 1970 to take away all reference to human beings in the process.

About Andy Keates

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05th Oct 2018 13:29

Nigel Popplewell is an intelligent bloke for sure, but I am pretty sure he's not Queen's Counsel or even a practising barrister for that matter. NP's latest decision on this human/computer point is here in case of interest:

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10702/TC0...

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to Justin Bryant
05th Oct 2018 14:17

I have amended the article to remove the error. Thanks for pointing out that new case, its similar to the one discussed here: https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-issues-invalid-pena...

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By Tromdo
08th Oct 2018 11:13

The point on the assessment is wrong. The assessment which was issued was only VALID, when signed off.

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08th Oct 2018 11:45

We all receive quite a bit of mail, it makes you think just how much of it computer generated.

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By a_q
08th Oct 2018 12:27

I expect that HMRC will now have to name the computer, and get him/her to "sign" the letters. So watch out for letters signed "ERNIE" or similar....

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08th Oct 2018 12:45

I think the decisions would be overturned if HMRC had the resources to take such matters further. The judge seems to confuse a couple of things and take some giant steps.
It is without doubt that a computer does not make a decision. That is made by a human being at a time which may be in the dim and distant past. The decision to issue a notice to file is based on published guidance. So for example, if everyone whose income is expected to exceed £x is to be required to make a return, an officer will make the decision and the necessary computer entry. The notice will then be issued via an automated process. But the decision was made by an officer. The fact that the decision is made in 2010 and simply carried forward cannot alter the fact that the decision was made. HMRC may not be able to bring forward the actual person (or indeed identify him or her) but is that required? The test is balance of probabilities and on the above basis it is self evident that an officer made the decision. After all, the computer cannot make decisions, it can only do what it's program is set to do (or not do it as I usually find).
I suspect that, even if there is a program that tells the computer to issue a notice if factors X or Y are present, the same must be true. The decision is made by a human being as to the circumstances in which the notice is given. The computer does not decide anything. It simply does what the program provides. There is a world of difference between the making of a decision and the sending out the resultant notice. I seem to recall something similar being said in a case involving a "late" assessment where the courts drew a clear distinction between the making of the assessment and the service of the notice of assessment. The assessment was valid because it was made, in HMRC's books, within the statutory time even though the notice was issued late. Sadly i cannot remember the case at the moment.
As some have hinted there may be many more such cases or questions and one day one may go to the higher courts. Till that time HMRC will have to battle on with its process of automation.

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By Dandan
to whitevanman
08th Oct 2018 13:21

whitevanman wrote:

I think the decisions would be overturned if HMRC had the resources to take such matters further. The judge seems to confuse a couple of things and take some giant steps.

I don't agree.

The taxpayer must have a recourse and must be able to ask why did someone at HMRC consider it necessary to submit a Return. It is no good for HMRC to say it is an algorithm embedded into the system.

I remember the good old days before self-assessment when every correspondence from HMRC had the name of the Inspector(a qualified ATII individual in those days, before ATII was replaced by CTA) on the top right corner of the letter with direct line. There was accountability then.

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to whitevanman
08th Oct 2018 13:47

"After all, the computer cannot make decisions, it can only do what it's program is set to do". Quite so. But the computer is programmed by a computer programmer, who might not be considered to be an officer of HMRC (or indeed, might not even be an empoyee of HMRC at all, but a contractor). In that case, it seems to me that the decision wasn't taken by an officer of HMRC.

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By wamstax
to whitevanman
08th Oct 2018 14:32

No person made the decision to issue a notice 10 years after the programmer was tasked with creating the tick boxes that would decide if the computer churned out the automatic process.
In the pre automatic process each and every assessment made by an officer had to be collected together and put in a "district Assessment Book Copies" and was not valid until stamped and bundled in the ledger to be included in the range of assessments made by the Inspector/officer and were only valid once the certificate of assessments made was signed by the authorised inspector.

There is nothing in the legislation that seems to have changed such requirements

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to whitevanman
09th Oct 2018 08:57

Well said, WhiteVanMan. We seem to live in a world where nostalgia overides common sense. I'm glad there are enough accountants in this world that believe that the loss of the farrier was the last straw. Not having to [***] (<-ret..ard - how's that for computer political correctness in this computer says no world) the ignition and hand crank the engine to get a car started, a submission to lethargy. As for using machines to write and communicate when a quill pen and shanks's pony are perfectly adequate !!!

Let the Luddites and Pedants prosper so that I can too.

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to BlueNose1812
09th Oct 2018 15:29

BlueNose1812 wrote:
Not having to [***] (<-ret..ard - how's that for computer political correctness in this computer says no world) the ignition and hand crank the engine to get a car started, a submission to lethargy.

Are you having a stroke? Do you need help?
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08th Oct 2018 13:34

I agree with the last post and with Popplewell. A notice to file a tax return can be a big deal for some people, for example pensioners who've never before filed a tax return but where HMRC have mucked up their PAYE codes and then suddenly they get a notice to file self-assessment.

"The computer says no" is just not good enough. In my view far too many HMRC letters arrive with no named individual, or even proper tax office, anywhere to be seen. There is way too much buck-passing in HMRC to let them get away with this sort of thing.

If HMRC can't be bothered to do things properly, then HMRC, please don't bother doing them at all.

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08th Oct 2018 13:47

This is hugely indicative of Orwell's prescient forecast (1984) of "Big Brother" society: where BB issues diktats and all must obey: in the German from the SS Officers and WWII, "Zu Befehl, mien Fuhrer!" (I hear and I obey!).

HMRC are acting in an anarchic manner (i.e. they believe they can act outside the law of the land, with impunity).

Which is very worrying.

I have recently reinforced this precise point to the House of Lords Select Committee, questioning, inter alia, HMRC's new powers...

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08th Oct 2018 14:19

Very good read. The Singularity is Near Ray Kurzweil is taking one step further. Human race shall render useless. Its scary..

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By wamstax
08th Oct 2018 14:36

Why should parliament remove the need for accountability by a specific officer for having taken a decision and given a notice?

There is no reason why a computer should be able to take over the decision making required to ensure that a proper skin and bone officer reviews matters and ensures that assessments and determinations and notices are valid and properly prepared at the relevant time - garbage in garbage out????

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08th Oct 2018 16:29

I'm not sure it is a case of hiding from accountability or even HMRC avoiding it's responsibilities. I too remember " the good old days" but they were not always good and we cannot go back to them.
In those heady times, legislation required certain things to be done by the "inspector" but does anyone think the inspector made the decision to issue a return or a notice of assessment? He didn't. The actual work was done by others and the inspector signed whatever certificate was required. The process involved a massive number of man hours, which I doubt people would be happy to pay for in this computer age. The fact is that "decisions" are made by humans not computers. The position is comparable to "the good old days" when the inspector didn't actually do the legwork to make or issue a return or assessment. One has to accept a degree of delegation in the process for any (large) organisation.
It is wrong to attribute decisions to computers or algorithms. They are simply the mechanical substitute for the workforce, which now does the routine bit. The decision as to (for example) the circumstances in which a return should be issued were all made by one or more humans and the guidance is published for all to see. So, I would maintain that there is nothing wrong with the process unless you prefer the "good old days".

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By wamstax
to whitevanman
08th Oct 2018 22:26

I am afraid that in the "good old days" the Inspector DID make the decision to make an assessment and the amount of such assessment. It was also the Inspector that decided if an assessment was able to be appealed and both to agree any adjustment to such an assessment or to take the matter before the General/Special Commissioners. The Inspector may have delegated certain processes to junior staff but the crux decisions were truly taken by the Inspector - to be now read as Officer of the Board - an INDIVIDUAL not the Board Generally

I have no truck with change and think that I respond positively to most "improvements" but just as in the good old days - somebody has to be accountable and take responsibility for the current decisions being taken. If there is no current member of staff that takes such responsibility or decides contemporaneous matters then how can the words of Parliament be interpreted so as to replace "if an officer of the board does such and such" we can include or change it to mean "if at any time in the past somebody - not necessarily being an officer of the board - decided that such and such would apply in the future". A step too far I fear !!!! Just like the present situation where HMRC get 12 years to make assessments where foreign income is involved "allegedly because it takes so long to force the information out of unwilling taxpayers/non-taxpayers when in fact they all of a sudden have masses of information coming in from foreign countries "informing" UK HMRC of all the amounts invested or used abroad that "MIGHT" relate to evaded UK taxes on foreign sources.
Hopefully the HOL review of HMRC's new powers may tighten the reigns a bit and ensure that HMRC have to act fairly and speedily in relation to any "potential" tax evasion/avoidance cases.

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08th Oct 2018 22:54

I'm afraid I must disagree. The inspector generally worked on what was Schedule D and CT where that person did indeed make most of the decisions as to the amounts assessable ( but not all). For all the Schedule E work the decisions were made at more junior levels in the main. As far as I can recall the decision to issue a return was almost always made by clerical staff.
I also think you will find that Parliament decided whether assessments could be appealed (mostly they could). The decisions in the hands of HMRC not all of which were taken by Inspectors were whether to accept an appeal and amend an assessment or to dispute it (along with similar issues about payments).
Finally, I think it is a bit difficult to talk about individuals making decisions in this day and age when taxpayers (if I may call them that) and their agents are clamouring for consistency. Inevitably instructions to staff are more rigid and published. So the real " decision" is made "on high" and staff (or computers) simply decide whether the criteria laid down is met in any particular case. This is the type of thing that leads to some of the decisions to issue returns or penalties etc which are often complained of or written about in Aweb. We really cannot have it both ways.

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