Taxing Times

 In Tax

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Mighty oaks come from small acorns. Mighty changes in society equally come from an inauspicious start. 31 October 1517 was when Martin Luther posted on the door of the Schlosskircke in Wittenberg his 95 Theses (Disputation on the Power and Efficiency of Indulgencies). Thus, the start of the Protestant Reformation. Secondly, take the train journey made by Lenin and Mrs Lenin, perhaps better known as Nadezhda Kupskaya, and 27 others, from Zurich via Sweden to Petrograd, soon to be known as Leningrad, in October 1917. It is said they travelled in a sealed train. I hope they paid for their tickets. And finally, in this context 14 July 1789 marked a revolution in France (the French are full of them before that date and afterwards) commencing with the storming of a prison in Paris known as the Bastille.

It is doubtful whether this article will start a revolution, but there is a point to be made and needs to be made by someone somewhere at some time in the hope that the point will escalate and, in due course, be a revolt if not a revolution.

From my perspective, the issue is one of “what is good for the goose is sauce for the gander”, or the necessity in the law and tax for a level playing field.

I suspect we have all become aware recently of the ever growing uses of legislation which impose further and further burdens on the taxpayer. As I see it, over the last decade or so, there has been little substantive tax law enacted in respect of capital gains tax or inheritance tax, but an ever-increasing volume of procedural law is finding its way onto the statute book, much of it to do with interest and penalties.

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I can quite understand HMRC becoming thoroughly fed up with taxpayers who delay payments by taking points that have some or have little or even no merit, and I can equally understand that the government, being desperately short of money, though it seems to have no problem in borrowing amounts beyond the wit of man to understand, becoming equally frustrated by the lack of tax revenue coming into the coffers of the Treasury. Not recently – there has been enough cash received to encourage calls for tax cuts; not yet appropriate, we are told.

But we are seeing more and more legislation to encourage the taxpayer to pay up, and to pay up promptly.

As recently as the Budget of 3 March 2021, a tougher regime of penalties for late payment of income tax was announced. Admittedly, it did not come into effect until April 2023, but thenceforth, penalties are calculated according to the amount of tax owed and the lateness of the payment at rates between 2% and 4% of the unpaid tax with daily accrued penalties on balances owed and paid 30 days after they were due for payment.

At one level, I do not argue with this, but there is another side to this coin, and this is where the revolution starts.

I have every sympathy for those working for HMRC at the coalface of income tax, capital gains tax and inheritance tax. They are being asked to deal with more and more work with less and less staff to help them and with respect to more and more complex issues. But in my view, this has all now gone far too far.

The revolution can be stated thus: if the taxpayer is required to pay interest and penalties on overdue tax, there ought to be an equivalent penalty on HMRC for its delays in dealing with matters. They are now resulting in what might be described as a miscarriage of justice. I have given my apologies to the staff – this revolution is aimed at the higher echelons of HMRC and the politicians who direct them.

I am sure we all have our examples of the delays in obtaining responses from HMRC. In one recent CGT case (see Chisnall v HMRC [2023] UK FFT 857 TC) where the taxpayer tried to persuade the Tribunal that the conduct of the case by HMRC although deplorable did not decide the dispute in favour of the taxpayer. It makes me wonder quite how bad HMRC have to be before the Tribunal will realise that what HMRC have done is unacceptable and ought to be penalised. Likewise I have had an income tax case. HMRC opened an inquiry in 2006 and did nothing about it until 2018. I have an inheritance tax case which took five years for HMRC to get round to dealing with the complicated returns on a ten yearly charge where there were claims for agricultural and business property relief. The story that HMRC came up with is that it is always open to the taxpayer to pay the tax that they consider to be due, if any, and therefore to complain about delays and interest is a false argument.

But it is not a false argument for the taxpayer to have paid his tax in 2006 and be presented with a bill in 2018 based on figures which are not acceptable to the taxpayer. Quite often complicated cases take a long time to resolve. Assume that there is a deal done between HMRC and the taxpayer which is somewhere between the figure submitted by the taxpayer on his return and HMRC’s assessment of the position. Added to the additional tax is interest from the date that tax was due which, in my first example, is more than ten years before HMRC got round to dealing with the issue that they have raised initially. How can the taxpayer be expected to pay tax and therefore interest on monies that he did not know HMRC considered to be due? And perhaps (she)he thought, reasonably, that no tax was due but had to pay some tax after HMRC decided to deal with the case.

There needs to be a system whereby HMRC are obliged by statute to deal with matters within a particular timeframe. I would have thought that three months is a generous amount of time to give HMRC to deal with a return or correspondence. I know, as do all of us, that, if we kept a client waiting for three months we would have a problem with him or her especially a problem getting our bill paid; and possibly no client at all. Indeed, three weeks is a long time for a client to wait for a response so in my first case 12 years is outrageous and in my second case 5 years is not far from outrageous. Something has to be done to produce a level playing field.

If HMRC consider that money is the answer to all the problems then they ought to be required to pay a penalty and interest on that penalty if they do not respond to properly completed tax returns or correspondence within a specified period – I am prepared to give them three months but after that there has to be some kind of financial penalty to level up the position with the taxpayer.

It is about time that the senior individuals in HMRC tell the politicians to whom they are accountable that they have been put under huge pressure by those politicians to deliver the returns (money that is) that are required but without giving them the staff to do the job. I know that large amounts of tax work is now done by computer almost without the human hand or brain being involved. But someone has to press all the relevant buttons.

We live in a complex and complicated society. We have a tax system that mirrors our society. If our legislators wish us to have such a tax system they have a duty to ensure that the system has sufficient numbers of staff of sufficient ability to manage the system. Currently the government is failing those who have elected it to provide enough civil servants to manage the tax system properly. Who suffers? See above, the tax payers. There have been large cuts in Revenue and Customs staff. It reduces the government wage costs which we all applaud but the consequences are unacceptable and we, the taxpayers, are not making anything like enough fuss about these consequences. It is time for us to man (excuse the personal pronoun) the barricades.

However, there are large parts of the tax legislation, and by and large they are the difficult parts, where computers are an irrelevance. For instance the issue of valuation particularly of shares in private companies, particularly property companies. There is no way a computer can conduct a discussion with the taxpayers agent on this topic. It has to be done by individuals and preferably by individuals in HMRC who have some experience of the valuation of companies and private company shares.

I do not expect that this article will produce an immediate change for the better on the part of HMRC. I would dearly love to see it but I am realistic enough to know that it will not happen. Nevertheless, as I wrote at the outset, revolutions have to start somewhere and if, in a 100 years time when the problem has been resolved, the origin of a solution to the problem is to be found in this article then I will happily turn in my grave to celebrate the product of a lengthy gestation period that produces fairness between the taxpayer and the government.

Communicating with taxpayers who are involuntary customers of HMRC; this is a large part of the job of HMRC and frankly they are not very good at it. In a bizarre item in The Times the First Permanent Security of HMRC told the journalist that HMRC is struggling to answer telephone calls and, at the same time, wants to reduce customer contact by 30% by the end of 2024. So more people want to have direct contact with HMRC and HMRC want to reduce customer contact. This seems a strange way of going about things, typified by the closure of HMRC self-assessment help line. HMRC added that there are no resources to deliver a satisfactory service through “the traditional channels of phone and post”. HMRC go on to say that some demands are unnecessary (just ask a taxpayer with a query if he thinks his demand is unnecessary) and some demands “can relatively easily be serviced online”, except for those people who are not on-line – presumably the elderly – but, HMRC reply, they will die off soon leaving only taxpayers who are online.

Meanwhile we all have to suffer interminable delays waiting for our telephone call to be answered or our letter to be answered. Quite unacceptable service on every level.

And as a footnote to delay. What on earth is still going on with the Probate Registry? What used to take three weeks at a local level is now taking more like three months at a national level. Again a reminder that Lord Palmerston exclaimed that we did not need reform because the world was bad enough as it was and reform would only make it worse. Case proved by the Probate Service.

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