HMRC attempted to use a self assessment tax return to collect tax which was only due because of its own mistakes. The first tier tribunal (FTT) cancelled all the late filing penalties.
Michael Griffiths (TC06697) was the victim of a PAYE foul-up by HMRC which resulted in his being served with a notice to file a self assessment tax return for 2013/14.
HMRC’s PAYE computer issued Griffiths with a tax calculation on 31 May 2014. Unfortunately, it only took into account one of his two employments and generated an overpayment of £579.80. A payable order was issued on 1 June, which he received on 3 June and duly banked.
Meanwhile, on 2 June, the computer issued a revised calculation which took account of all his income. Griffiths had, in fact, underpaid tax by 80p for the tax year (which would have been simple either to code out or to discharge). However, because of the payable order issue one day earlier the consequence was an “underpayment” of £581.60.
Putting it right
Griffiths rang HMRC and was assured that the money would be collected through his PAYE code. At the tribunal, HMRC could produce no record of the call, but the judge noted (citing Capuano TC06371) that HMRC’s level of customer service at the relevant time had been so “abysmal” that it was reasonable to believe the conversation took place.
Unfortunately, Griffiths’ level of earnings was too low for the “underpayment” to be coded out. HMRC did nothing for over eight months (by which time Griffiths assumed that the matter had been dealt with), then issued a “voluntary payment letter” which stated they would issue him with a self assessment return if he did not pay the £581.60.
Once again, Griffiths rang HMRC. This time there was a record on the file, although the judge had difficulty interpreting it. It appeared that once again Griffiths was reassured that the money could, and would, be coded out.
Another year or more passed, and then on 28 July 2016 HMRC issued a notice to file a self assessment tax return.
Confused and concerned
Griffiths was now worried and confused:
- HMRC had told him on two separate occasions that they would be coding out the debt.
- Griffiths’ tax affairs had always been dealt with under PAYE. He thought self assessment tax returns only applied to self-employed people.
Around this time, there were numerous reports of scams involving correspondence which purported to come from HMRC. Griffiths’ fears of being caught up in a scam were further stoked by the arrival of penalty notices, which did not tally at all with what he was expecting from his relationship with HMRC.
In April 2017 he instructed an agent, who submitted the outstanding tax return in June 2017.
The FTT judge concluded that Griffiths certainly would have a reasonable excuse for the delay in filing his return.
The test, as elaborated by the upper tribunal in Perrin  UKUT 156, requires that “the experience, knowledge and other attributes of the particular taxpayer should be taken into account, as well as the situation in which that taxpayer was at the relevant time”.
Griffiths had not been issued with a paper return, merely a notice to file. Obtaining a paper return involved navigating the HMRC computer system, and seeking more help would involve calling the helpline whose performance “at the time was abysmal; half of calls to HMRC were not answered”. The judge was referring to the scathing National Audit Office (NAO) reports discussed in the Capuano case.
The long delays by HMRC, which led Griffiths to believe everything had been sorted out, along with the telephone assurances that it would all be handled through the PAYE code, did not help. When the penalty notices arrived, it was at a time of much publicity regarding scammers pretending to be HMRC asking for money.
Taking account of all the circumstances of the case, the judge was sure that Griffiths would have had a reasonable excuse. But did he even need one?
The judge reviewed and agreed with Judge Richard Thomas’ judgment in Goldsmith (TC06284), which dealt with a situation very similar to that of Griffiths.
Section 8 of TMA 1970 empowers an officer of HMRC to issue a notice “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year”.
Where a P800 tax calculation has been issued HMRC is already aware to its own satisfaction of exactly how much income the taxpayer had, and how much tax he or she owes.
These were not matters that needed to be established, and so the notice to file a return was not made for the reason mandated by legislation. Accordingly, the notice was invalid, and any penalties based upon not complying with the notice would also be invalid.
Judge McKeever joined the growing consensus among FTT judges that a self assessment tax return should not be used as a means of collecting known amounts of PAYE underpayments.
HMRC has once again made a rod for its own back. This case was a “perfect storm” of SNAFUs: an error by the infamous PAYE computer; the abysmal customer service so heavily slated by the NAO; the long delays which added to the all-round confusion; and the inappropriate use of self assessment to rectify a PAYE problem.
In the future, there should be fewer such cases, as the new simple assessment system (TMA 1970 s28H) is now the approved method of dealing with this type of situation.