The plight of David Preece shows HMRC’s capacity for maladministration and lack of judgment, says ICAS Director of Taxation Derek Allen.
The following contains
Derek Allen’s personal views and does not necessarily represent the views of ICAS.
To listen to Derek’s weekly tax podcast, click here.
Millions of taxpayers rely on HMRC to get their tax affairs
right. Sadly, HMRC are all too often
responsible for errors which cause unnecessary work. The worry is that in such a complex tax
system, the scope for error is considerable.
The following case illustrates that HMRC can lack judgment
and compound their mistakes.
As you read it, place it in context that Mr Preece lost his
job, sought HMRC’s help, became entitled to the additional personal allowances
which are age-related and was invited by HMRC to claim these by completing a
tax return, which he did very quickly after being notified.
The difference between what is right and wrong is
clear. HMRC failed to deliver an
acceptable service in this case and I can only speculate about how a case like
this ever managed to get through to a tribunal.
It must be clear to any reasonable person that HMRC were guilty of gross
and repeated maladministration.
In David Preece v R & C  UKFTT 192 the issue was
whether a £100 penalty for a late self-assessment return could be
collected. When you read what follows, I
suspect that, like me, you will be amazed at the lack of judgment demonstrated
by HMRC. The taxpayer succeeded in his
appeal against the £100 penalty but at what cost?
HMRC made mistake after mistake but the Tribunal ruled that
it has no jurisdiction to consider complaints about HMRC’s administrative
failings. Anne Redston, the presiding
member at the First-tier Tribunal did give guidance as to how Mr Preece could
pursue his complaint but really HMRC should hang its head in shame at this
particular case which it lost and the penalty for a late self-assessment tax
return was not due.
The following are the facts:
- Mr Preece was made redundant at the end of March
2008 and he asked HMRC to check whether his employer had deducted the correct
tax from his redundancy pay as he felt he had paid too much.
- HMRC sent a P800 tax calculation which said that
Mr Preece owed HMRC £2,037.56.
- Mr Preece asked to repay this sum over a two
year period by adjustment to his tax code accepting HMRC’s calculation. However, late in January 2011 Mr Preece
received a letter from HMRC demanding payment of the £2,037.56 by 25 February
2011. He wrote saying that he was
worried and upset by this letter because he had been told that the underpayment
was to be collected using his coding notice.
- HMRC treated this letter as a complaint and
after reviewing the file recognised that far from owing HMRC anything he had
overpaid his tax in 2008/09 and was in fact owed £1,836.57 by HMRC. The review also indicated that by 2009/10 Mr
Preece might have become entitled to age-related personal allowances and asked
him to complete a 2009/10 tax return, which would be sent to him.
- Early in April 2011 Mr Preece received a
self-assessment return for 2010/11 which he submitted online promptly. By June 2011 Mr Preece had received a penalty
notice for £100 for his failure to submit a 2009/10 self-assessment tax
return. He explained he had never
received that return.
The Tribunal ruled that on the balance of probabilities HMRC
issued the wrong paper return for 2010/11 instead of the return they wished,
which was for 2009/10, but if this were wrong, the Interpretation Act section 7
deems a return to be delivered unless there is evidence that it has not been.
Mr Preece’s evidence showed him to be a transparently honest
person who dealt promptly with communication with HMRC and consistently tried
to pay the right amount of tax.
Accordingly, his rebuttal that he had not received the notice for 2009/10
applies and the notice was therefore never validly served. The penalty notice is therefore not valid and
the appeal succeeds.
Unfortunately, the Tribunal does not have jurisdiction to
deal with HMRC’s maladministration. It
really is shameful that HMRC sought over £2,000 additional income in error when
in fact he was due a refund.
Anne Redston observed at paragraph 47:
“… it is surprising that HMRC were not able to come
to this conclusion themselves: this would have avoided the further stress
placed on Mr Preece by the appeal, review and Tribunal processes”.
Although she did not have any jurisdiction over complaints,
she did advise Mr Preece how to pursue a complaint for compensation to the
Adjudicator and provided a link on the HMRC website to this.
Full details of the ruling are available to view here.
This case, and other taxation matters are covered in ICAS
Director of Tax Derek Allen’s weekly tax podcast, which you can listen to here.