FTT: HMRC issued massive tax bill to ‘frighten taxpayer into responding’
A taxpayer failed to respond to questions about used car sales, so HMRC plucked a figure of taxable profit out of the air to use as the base for tax and penalty assessments totalling £342,943.
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But shamefully this HMRC tactic works perfectly when the poor over-assessed taxpayer does not appeal it in time (for one good reason or another) as has been noted here many times. See for example: https://www.accountingweb.co.uk/any-answers/harsh-refusal-of-late-permis...
https://www.accountingweb.co.uk/any-answers/interesting-case-on-how-hmrc...
https://www.accountingweb.co.uk/community/blogs/leshoward/out-of-time-ap...
https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-blasted-in-special-...
In my experience, HMRC take this approach even where taxpayers have responded. I have seen them estimate astronomical income figures which would be completely impossible to attain, with no basis in common sense. They send out inspectors who know nothing about the taxpayer's industry and, in one memorable case, did not know the principle of double entry bookkeeping.
In my experience, HMRC take this approach even where taxpayers have responded. I have seen them estimate astronomical income figures which would be completely impossible to attain, with no basis in common sense. They send out inspectors who know nothing about the taxpayer's industry and, in one memorable case, did not know the principle of double entry bookkeeping.
We had a case like this.
Apart from estimating tax and interest in respect of several years before the commencement of trading, they also assessed VAT on the estimated turnover. This was despite the fact that our client could not possibly trade without premises, plant, vehicles, employees, official licenses and contracts with local government customers.
They made several errors in their calculations regarding years he was trading, including getting the number of months in a year wrong ( twice), Trying to reconcile net reported sales with bankings without allowing for VAT and failing to ask for an explanation of the accounting records.
They also completely failed to understand the fundamental basis of our client's trade.
We went for a review by an independent HMRC officer.
His conclusion, "We haven't exactly covered ourselves with glory on this one".
All amounts assessed were cancelled, apart from a small adjustment to the first year's results, where we had insufficient records from the now deceased original accountant to fight it.
We complained and our client received sufficient compensation to cover our fees.
Not just vexatious but incompetently handled.
Neither I nor my colleagues have ever seen anything like this case, before or since.
This seems to be extortion by attempting to extract money that is not owed by making threats, and harassment by a "course of conduct" intended to cause distress or fear. Maybe the way to stop it is for someone to bring a prosecution under s3 of the Protection from Harassment Act which allows a citizen to seek damages and an injunction through the civil courts if, as the tribunal ruled, the assessments appear to have been issued “to frighten the taxpayer into responding to requests for information”.
I disagree, Wilson. It's not incompetence at all, Quite the opposite.
It's more a change of attitude from "collecting the right amount of tax" to "[***] the taxpayer for every penny HMRC can get."
It merely reflects plummeting Government standards in the twenty-first century.
I wouldn’t disagree with you. I just happen to consider that John’s reaction is way OTT.
I wouldn't disagree with John.
HMRC shouldn't be allowed to bully folk. Nor should any Government department. Yet it happens a lot - if we are to believe the anecdotal evidence.
I had a friend attempt to commit suicide because of bullying by the DWP. He was bed bound, paralysed from the neck down apart from one arm with slight movement, and was told by a DWP assessor that he was "fit for work". He tried to commit suicide by taking an overdose, survived it, and died a couple of months later.
I've seen bullying by Government departments get worse and more extreme over many years to the point where some people are too scared to apply for help they are entitled to. It's not a party political issue, it's happened under different Governments. The fact is that civil servents think they are a law unto themselves.
How can that be right?
the type that targets any relatively new member, and I know exactly how to deal with them.
And I know exactly how to deal with someone that claims to be a relatively new member but who is anything but.
If it causes fear or distress without lawful excuse then it is an offence and issuing demands for amounts which HMRC know or ought to know are grossly excessive is not mere incompetence, it is, at the very least, reckless. There are numerous examples of people committing suicide when wrongfully chased for monies they don't owe, or, denied benefits they are entitled to. Never underestimate the damage such things can cause.
On the basis that DWP provides State pension information direct to HMRC, why can't it provide information on those in receipt of specific allowances (which are to provide income to those unable to work) to ensure that (a) the claimant is not telling the DWP fibs, and (b) that HMRC does not waste its time (and our money) on cases such as these based on such flimsy evidence.
I don't know what the fuss is about, isn't this the same method that Amazon, Vodafone etc use when deciding how little tax they want to pay...?
It isn't funny where the taxpayer under investigation stands to lose his home and his livelihood.
I know a case where the client was issued a £365000 tax bill and when his accountant challenged the revenue the inspector said he could make up any figure he wanted!!!
That's always been true.
But it wasn't taken to extremes in the days when HMRC was properly staffed.
So the Revenue issues an assessment to the "Customer" and he promptly files it in the recycling bin. I assume they then issue a court summons and this is promptly ignored too.
When does it get to the stage of either the cops kicking down the door to arrest the uncooperative "Customer" to place in front of a judge or the vexatious assessment gets lost in a pile of bureaucracy that the Revenue boys and girls have yet to get round to?
What happens if the "Customer" has gone to the next tax haven in the sky and has forgotten to tell HMRC ? Do they try to track down ghosts?
Sometimes the HMRC officer is on a training exercise, they have no clue how to approach the inquiry. And in trying to impress their manager they would request all sorts of info (applicable or not applicable). The manager only reviews their file every few weeks, by then the damage is done.
Many many years ago when I were nobbut a lad and working in HMRC I remember the annual manual assessment processing (way pre computers and bearing in mind I doubt I was earning more than £4k a year) went something along the following lines for non responders:
1) what did we assess last year? £5k.
2) OK did that elicit any sort of response?
3) No? Well they must have been happy with that; so
4) let's see how they feel about £7.5k
I've got to say that I do have some (strictly limited) sympathy for the Revenue here.
We can all cite cases of wholly disproportionate bullying by the Revenue and gobsmacking incompetence and unbelievable gormlessness.
But, leaving that aside, how exactly are the Revenue expected to engage with uncommunicative taxpayers? At the end of the day, a significant proportion (I wouldn't necessarily go as far as saying 'most' but it may well in fact be most) of these will owe some tax and it's in all our interests that these taxpayers do pay what they owe.
For me too, I am reminded of the pre SA regime of estimated assessments and, as Paul says, the Revenue practice at the time (and, by the sounds of it, their practice still now) of increasing the amount of these assessments until the taxpayer blinks. I can't say that I necessarily see too much wrong with that practice.
But what if the customer just ignores the Revenue's demands every time?
There are many persons in the UK who think they are above the law and have no duty to pay tax to anyone. They work often in unsavory fields and earn money and don't see that anyone else should benefit from that effort. If they are good at hiding the money and are paid mostly in cash, who's to say how much they made ? Do the Rev just write these cases off as too hard ?
Too many what ifs here.
The real issue is the quantum of the assessment. If HMRC think £50,000 is about right, I don't have an issue with them estimating £60,000. I have a big issue with them estimating £600,000.
Let's not forget that, if that £60,000 is unpaid, HMRC can always raise a supplementary assessment later until the taxpayer (or nontaxpayer) is coaxed into compliance.