Monday, April 5, 2010

No 'reasonable excuse' for this waste of public funds

A recent Tribunal case will reinforce the view of many people that HMRC are continuing to take an unfairly hard line with compliant taxpayers. The cost and time and effort involved in this case (TC00425: Adrian Waddington) are wholly disproportionate to the 5% surcharge in dispute (£219.52). And, as the Tribunal determined, the taxpayer had evidently made every effort to fully comply with his obligations and to pay his taxes on time.

Mr Waddington is an employee. He's a chartered mechanical engineer and pays PAYE income tax on his earnings in the normal way. He also receives dividends and net interest from his savings. The Tribunal noted that he always filed his tax returns and paid his taxes on time.

The issue in this appeal was whether Mr Waddington had a reasonable excuse for failing to pay the tax due on his self-assessment for 2007/08 by its due date. In the 1990s he had received and filed self-assessment forms each year. Then HMRC stopped sending the forms to him. Instead in April 2008 he was sent a Tax Review form for 2007/08 which he completed and filed on 25 September 2008 (before the deadline). He heard nothing further until January 2009 when HMRC asked him to complete a self assessment return - with the same information already disclosed on the Tax Review form - and to pay any tax due by 31 January 2009.

Mr Waddington filed the return within the 3 month period afforded by the notice but was unable to compute the tax due. Instead he awaited HMRC's computation which arrived in June 2009 at which point he immediately sought assistance from a local HMRC office. And as they were no help he went to a tax accountant. The 5% surcharge however was deemed to have been triggered beforehand as the tax wasn't paid by 29 May. Looked at objectively however there would have been no possibility of a surcharge had HMRC dealt with Mr Waddington's affairs in a more timely manner.

It seems to me that the surcharge rules operate unfairly in a case like this where HMRC issue tax returns late through no fault of the taxpayer. This would not be a problem if HMRC were themselves 'reasonable' when considering whether a taxpayer has a 'reasonable excuse' for the late payment of their tax. The Tribunal was quite clear that such an excuse existed. When HMRC adopt a heavy handed approach as they did in this case, they risk bringing the system into disrepute.

What do you think?


  1. Just to emphasise: Mr. Waddington had no way to work out his own tax liability as the computational sheets were not issued with the 2008 tax returns. If the return had been submitted online the tax calculation would have been performed automatically, and if it had been submitted on paper before 31 Oct 2008 HMRC should have issued a statement in time for Mr Waddington to pay what was due by 31 Jan.

    However, the taxpayer was issued with a tax return form late, with no computational sheets, and incidentally not all of the supplementary pages he needed. He had no idea how much tax he was due to pay until HMRC sent a statement in June 2009, so he could not have paid the correct amount of tax due by 29 May 2009.

    Mr Waddington was failed by the SA system, and doubled failed by the HMRC helpline and enquiry centre staff who could not tell him what tax was due and when he should pay it.

    The SA system needs to be changed so unrepresented taxpayers, who do not have access to the internet can calculate their own tax. Alternatively HMRC should have an obligation to calculate the tax due and inform the taxpayer in good time before the due date, where the paper tax return is submitted on time, which this one was!

  2. Having had an issue with HMRC in the past - several years ago - whereby I was instructed to complete a tax return after the paper filing deadline - and subsequently being unable to register for online SA (or unable to register in time; I can't recall which), I'm not surprised.

    It seems that a lot of effort goes into making any failure on the part of HMRC the fault of the TaxPayer.

    Something which is often forgotten is that the efficiency with which tax is collected is almost as important (if not more in ways) than the actual level of collection.

    Obtaining £500 in tax from an individual is great - but if it costs £1000 to do it, then there seems little point!