Tuesday, April 7, 2009

HMRC making people bankrupt

This is one of 3 consecutive posts inspired by last night's TV programme 'Taking on the taxman'. The first gave my take on most of the key elements of the programme. I've also shared additional observations about one aspect below and one other in the next post.

The first story in the programme focused on a cock-up that resulted in a taxpayer being made bankrupt despite having having overpaid and being due a VAT refund. Ultimately he received £50k compensation which was a fraction of the money he had lost. It was disgraceful. But rare? The key point is that it seems that the bankruptcy order was made without anyone having direct contact with the taxpayer. Eventually it was annulled but not before he'd lost his business, his home and suffered depression.

The reporter made a request under the Freedom of Information Act to see how often HMRC commences bankruptcy proceedings which are subsequently annulled. It seems that in each of the last 3 years HMRC has annulled about 100 Bankruptcy orders. The programme sought to suggest that all such cases were similar to the ones we had heard about.

The voice over did concede however that HMRC had explained that in many cases the annulment occurred once the outstanding debt had been paid. No one questioned whether such debts were always strictly due though.

Dave Hartnett stated that it was right that HMRC had the power to instigate bankruptcy proceedings when tax remain unpaid. I agree. BUT I would expect that such a power should be used as a last resort. The only reason I can think of for NOT requiring a senior official to authorise such use is if this would be too onerous - thus suggesting that the power is being used too freely.

And I wonder whether the use of bankruptcy orders is much like the £100 penalties for late filed tax returns? These are automatically generated by computer and subsequently waived or reduced once the outstanding tax return is filed and the outstanding tax (if any) computed.

What do you think? Did you watch the programme? Please add your views and thoughts as comments on this posting - just click the 'comments' link directly below.

1 comment:

  1. Having watched the programme I believe that any bankruptcy petition should be signed off by a senior director or even a member of the Board who assumes full responsibility for the whole case and it will be their job on the line if it was found that the action was taken in error.

    We need to see senior revenue officials take responsibility for their actions Also Revenue should be open to pay in full all direct loss and expense claims as a result of what can only be consider negligence as shown in the televised case.