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It felt like needed to make a post on the Blog today at close of play perhaps I am thinking of it as a bit of therapy...

It fact it now feels like I am in one of those American soaps where the embattled person needs to see their therapist... what is being a tax adviser doing to me! 

Having qualified as a Chartered Tax Adviser in 1990 and dealt with a wide variety of tax issues and situations at all levels I like to think I am reasonably capable at my job. In fact I have always said I love my job and sad as it might seem I "do" (just about at times) still love my job...The only part of my job I hate is dealing with HM Revenue & Customs or indeed the ever increasing level unclear poorly drafted and often unfair or unreasonable tax legislation.

In trying to resolve a dispute today between advise HMRC had given a client I had a joyful call to Mr Taxman at CIS Helpline (he would only give me his first name despite wanting my full name nice touch I have to say, why was he trying to hide?). Part way through the call he refused to speak on "speaky phone" as a partner was also involved in the call, as he was well aware from the beginning (two off us talking) so we had to take the call of speaker phone and relay Chinese whispers for the rest of the call (pathetic frankly). And he refused to give his surname, clearly understanding a formal written complaint was to be shortly winging its way in, then on supposedly transferring me to his supervisor he simply cut us off.

Was a surprised... Surprised would be the wrong world this is what you expect from HMRC routinely, but I never cease to be amazed at just how, rude, unhelpful and simply useless HMRC Revenue & Customs staff are. There is a systematic total lack of respect for taxpayers, accountants and members of the public at HMRC from the top management right down to the lowest level of assistant.

I would hasten to add this is not EVERY member of HMRC's staff is like this, in fact it is a breath of fresh air when you actually speak to someone who is helpful and polite although this is increasing rare.  If you are really really lucky you will very occasionally come across one with a sense of humor but they are am endangered species being hunted down by their managers it seems…

HMRC have told a Limited company client that has purchased two buildings to convert into flats that they are deemed to be a "developer" and therefore have to be registered under the CIS scheme.  HMRC did not dispute that the client is not deemed to be a contractor on level of construction type expenditure grounds which is well below the limits so in order to be able to tell the client, and indeed the main building contractors accountants (a multi million £ company) why exactly HMRC were “right” and that our client should be registered for CIS as the property owner, as they were saying, I asked for the legislation or public guidance that I could then pass on to the client and the builders accountant to show HMRC's opinion was correct.

Response. "It is in our internal guidance".

OK I reply "which part of the internal manuals which I can pass on the builders and my client".

The reply "it is not in any publicly available guidance.".

"What about statute" I reply.

"It is not in statute either" comes Mr HMRC's reply.

Bearing in mind this is the specialist CIS unit I am speaking to at HMRC I reply "so what you are saying here is that this is unpublished HMRC opinion, on which there is no guidance or statute how am I supposed to advise my client professionally and properly?"

Bearing in mind the call took around 1 hour 20 minutes of which around 50 minutes was spent on hold the answer came ...

"Get your client to call us here at the CIS unit and we will tell them over the phone..".

The fundamental point here is that Government and HMRC management fail to see this is exactly why there are so many rogue ORC's (Officers of Revenue & Customs).

So basically HMRC can make the rules up as they go along...

Now why is that? The answer seems pretty clear to me... Government has now become a leading expert in writing legislation which is poorly drafted, so widely drafted no-one knows the boundaries in which to work, and the rules become ever more complex year on year on year.

So what is needed? A radical shake up at HMRC would not go amiss for starters but it is perhaps time we had a change of Government if for no other reason that complacency and stupidity goes out the window and maybe we get so shred of common sense. This is not a party political statement by the way. With so many career politicians I personally can't see a clear winner on the Common Sense stakes. But after over ten years of madness personally I think it would be just good to have a change. I cannot see it being any worse but I can see it getting even worse if things carry on as is… Hopefully it a fresh approach might just see some levels of reality and humanity returning. Even the Monster Raving Loony Party could frankly do a better job on lots of issues…

Tax has truly gone totally potty… a direct reflection perhaps on the people writing and enforcing the rules…

What do you think? Have your say here and express your opinion...

    http://www.opinionpolls.me.uk/polls/Government/HMRC-performance.asp

Anyone who has had a tax investigation or enquiry will probably be hopping mad about the amount of time it took up and the potential costs involved.

I read a great article in The Sunday Times this week by Nick Morgan a journalist who had a tax enquiry into his own affairs.

You can read about his case on his website www.tax-hell.co.uk it has some very useful information for anyone (including tax professionals) involved with tax investigations and enquiries. 

His case is simply the tip of the iceberg. He is certainly not alone. HMRC however simply do not seem to care. HMRC has little respect for taxpayers and business of the UK.

HMRC also has such a shocking lack of understanding about how businesses work and the level of red tape and regulations they now have to cope with. 

Today I am dealing with a case where HMRC would love to effectively shut a business down simply because they are in the building trade and paid one months PAYE late and paid their Corporation Tax a little late. HMRC will of charged them 8% late payment charge but this is not sufficient compensation for HMRC they would also like to write to all the customers of this business basically saying the company is a bit naughty and therefore we will be withdrawing the gross paying CIS certificate.  I am clearly appealling this one all the way. When HMRC behave so madly you just have to fight them all the way.

As a consequence it is possible that around 50 plus people could be out of a job and a profitable business paying lots of tax will be crushed.  A business that has paid ALL it's tax and on time the vast majority of the time for a good number of years, a regular reasable sized non troublesome "customer" of HMRC. Tax madness and HMRC and the Government gone totally potty.

In another case I am appealing a seperate case where HMRC want over £1000 in fines for late NIL CIS monthly returns. This is simply unreasonable.

The logic of this government and HMRC is simply astounding and beggers belief. It is a tax world gone mad.

When a new member of staff starts at HM Revenue & Customs the first thing they are passed is a stick.

The team leader when asked what this is for then replies. "Look in this job we beat taxpayers with a stick if they make ANY mistakes, no matter how small use the stick and use it well, and don't hesitate to use it".

"But what about helping taxpayers?" asks the new trainee...

"Help... don't be stupid why would we want to waste time doing that. There is more MONEY to be made with the stick and you will get no thanks or praise from me for helping but you will be rewarded for stick useage....the better the beating the better the rewards..."

David Cameron's speech at the CBI (Confederation of British Industry) Annual Conference today at around 10am for approximately 30 minutes.

David Cameron leader of the Tory's is reported recently as plendging to reverse the proposed CGT changes.

David Cameron is speaking at the CBI Annual Conference as I type.  "As Prime Minister I want businesses to grow..." "We have the greatest tax burden in peace time history" Billions have been wasted on changes that have not worked according to Mr Cameron. The list of Billions wasted by Government realled off by Government (he did not mention the near of £30Billion "given" to Northern Rock) was truely staggering.

Mr Cameron goes on however (so here comes the small print) "We need your help...". In other words you will have to pay for any tax changes in otherways...

Sadly Mr Camerons speech was very weak on substance with a lot of rhetoric thrown in. More than a few times he says "My vision for Briton..." with no or little detail to follow.

Asked if a conservative would return a 10% rate of tax for business sales all he said is that he will "fight the proposed changes" "if we can't pursuade the governement to change it's mind...". He accuses Labour of being a "weak government" a number of times in his speech but frankly the answers to many questions were little but waffle and rhetoric and indeed somewhat weak so there can be little comfort to the business community from the Tory's in reality based on this particular speech.  Perhaps if we had a much stronger clearer opposition in Parliament we would see much less waste much fewer problems in Government.

The political opposition has been extremely weak for the last decade and this was I my opinion another example of weak opposition lacking in substance.

Alistair Darling is due to speak at the CBI (Confederation of British Industry) Annual Conference today.

He is supposedly not going to be making direct statements about the U-turn on the flat 18% CGT (Capital Gains Tax) rate due to be coming in April 2008 as announced in the Pre Budget Report recently.

David Cameron leader of the Tory's is reported as plendging to reverse the proposed CGT changes.

It will be interesting to see how this proposed 80% increase of tax on mainly small businesses is now reviewed and it is a stark example of the shoot from the hip style of government we now have in the UK. Whatever happened to "think before you speak"?

It is reported in the press today that the increase of tax on business is required to pay for the changes to IHT exemption. This simply does not add up. What about the reduction in tax on second homes, holiday homes and investment properties by at least 10% (or up to 40% in many cases). How many MPs will benefit from the reduction in tax on their second (or third!) home or investment property?  The cost to the Exchequer of the reduction of CGT in investment (not business) assets will be very significant and possibly more than the hike in CGT on business sales (apart from the massive private equity deals). You get the idea that either Government has not got a clue or that the spin put on annoucements is massive. Both could well be true.

More to follow when further annoucements are made about the CGT proposed changes.

HMRC are now trialling a new enquiry proceedure between November 2007 and April 2008 as announced on 29 October 2007.

I have to say from experience of dealing with HMRC Enquiries that I am sceptical about the face put on this latest round of Enquiry trails (different "phone enquiry" trials were held earlier this year).

Supposedly HMRC claims that it "recognises the need to get its communications right across all areas of its responsibilities" and "This is particularly important where additional burdens may be felt by taxpayers and their agents as a result of a formal enquiry into tax affairs".

From personal experience of advising taxpayers in this area of tax the costs of dealing with enquiries are often totally out of proportion to any adjustments made to liabilities by HMRC. What's more, time and again, taxpayers often decide to pay HMRC some extra tax just to get the enquiry over and done with as this is often more cost effective for a taxpayer than a prolonged enquiry.  Many taxpayers, even where they have done nothing wrong, find tax enquiries extremely stressful events. HMRC usually approach the enquiry in an agressive manner and from the outset leave taxpayers with the clear impression that HMRC think they are dishonest. Most tax enquires are an unpleasant experience for taxpayers and HMRC's approach to enquiries usually makes this much worse. Not only is there the emotional stress that most taxpayers experience but the disruption to business and life generally that are common place in enquiries.

From personal experience around 75% to 80% of HMRC enquiries cost more to the Government to undertake ( and therefore UK tax paying citizens generally) than they recover in extra tax. If you add to this the cost to the actual taxpayer under enquiry i.e. the cost of accountancy fees and disruption to business etc, and the % of none cost effective enquiries would rise to around 90% or more.

Presumably HMRC will now be "open" about the financial incentives to HMRC staff to recover extra tax in Enquiries. If you ask most Inspectors about this they are very upset to say the least. I asked one Inspector while I was spood outside a General Commissioners Hearing awaiting the Commissioners decision if this was true and was informed it was true "but the targets were so high most HMRC staff never reached them".  The Inspector concerned thought therefore the financial target were not the reason that most tax enquiries were more aggressive these days. However I put it to him that "Perhaps having high target for financial rewards to Inspectors was in fact the very reason that so many Inspectors were so unreasonable when dealing with taxpayers".  One lady inspector I asked on the phone said "absolutely not there are no financial rewards to HMRC staff in enquiries". When my response to her was that I had spoken to another Inspector not long previously who confirmed there were indeed financial rewards to Enquiry Inspectors as an enticement to try harder, she demanded to know his name and was very upset when I would not give it, bordering on threatening. It was a very interesting experience simply asking a straightforward question of HMRC which most Inspectors I asked were unable to answer honestly. How ironic that HMRC think that most taxpayers are dishonest.

HMRC has been working with Taxpayer Representative Bodies to consider how earlier and more open communication can improve the way we deal with our formal enquiries.

The result is proposals for a different approach which will be tested between November 2007 and April 2008 – this approach is called ‘Openness and Early Dialogue’.

Openness means that HMRC will advise taxpayers and any agents acting on their behalf :

• whether the enquiry is “full” or “aspect”; and
• why the enquiry has been opened.

Not been funny here but isn't this what HMRC are supposed to do anyway ever since the current enquiry proceedures started. Maybe they forgot of lost the previous proceedures? 

At the start of the enquiry, HMRC aim to agree with the taxpayer and/or their agent an explicit, though flexible, timescale for (sorry I could not help chuckling when I read this bit of the statement by HMRC):

• an initial meeting, or a telephone call in certain cases;
• the production of information and documents;
• the records examination; and
• a discussion of findings.

The Openness and Early Dialogue tests will explore the possibility of some, or indeed all, of these steps taking place on the same day.

A full enquiry is one which seeks to address all the significant risks or error in the return, including the risk of the return being fundamentally incorrect.

An aspect enquiry is one which falls short of a full, in-depth examination of the whole return, and instead concentrates on one or more aspects.

An early meeting, or a telephone discussion, together with the letter advising the reason for the enquiry, aims to help:

• the taxpayer and the agent understand the enquiry process more precisely and agree an appropriate timescale to carry out the various elements;
• HMRC to understand the precise nature of the business or the circumstances of the individual under enquiry, the records kept and the work carried out by the agent in compiling accounts and Tax Returns, before HMRC review the records; and
• focus the enquiry on the key points of risk and eliminate less important elements at the earliest possible stage.

An agenda for the meeting, adapted where there is no agent acting, would include:

• introductions by those present to include an explanation of their roles and responsibilities;
• an explanation by HMRC of the enquiry process from the review of the records through to closure;
• a description from HMRC of why the enquiry was opened;
• details of HMRC’s requirements and the opportunity for the taxpayer to make a further declaration if appropriate;
• a description from the taxpayer or agent of the nature and running of the business, the record keeping system, and any other relevant matters;
• details from the agent of the work carried out to produce the figures on the Return from those presented by the taxpayer and any accountancy points not dependent on the records;
• a discussion of the records kept and agreement of those to be reviewed, including a detailed explanation of why any non-business records have been requested; and
• an outline timetable for future actions and responsibilities for those actions.

"Not attending a meeting will not, in itself, be seen as a lack of co-operation" (yeah right pull the other one).

Following the initial meeting, HMRC will carry out a review of the appropriate records which may be followed by a further meeting to discuss the findings.

At this second meeting the taxpayer and any agent acting will be given an opportunity to answer any questions or concerns arising from the record review. Agreement should then be reached either about the actions required or that the enquiry can be closed.

Ideally the initial meeting, record review and discussion of the findings will be held on the same day, but where this is not possible a mutually convenient date will be arranged.

So there you have it. This is believe it or not being put forward by HMRC as trying to improve enquiry proceedures. We will have to await the findings.

I will be amazed if we see real improvements in the way Tax Enquiries are handled by HMRC following this review.  With HMRC TRYING to put on the friendly face (friendly adverts like the rediculous "Tax does not have to be taxing" and the latest stream of adverts that promise to "...Help you land on your feet..." HMRC are clearly trying to at least promote themselves are reasonable, helpful and friendly. However beware of the wolf in sheeps clothing.

Personally I am most concerned about the meeting and telephone basis of the new enquiry testing.  It certainly helped one of my enquiries having a taped telephone conversation of the Inspectors first call to the person who subsequently became my client (as his firm taped all incoming and outgoing calls). He asked me to deal with the Tax Enquiry as he found trying to talk sense to HMRC impossible and also found them intimidating. During the following amazing exchange of letters I had with HMRC which included a senior Inspector not even being able to calculate a simple tax calculation correctly (he said the taxpayer owed £400 (approx) when actually HMRC owed the taxpayer around £400, and he was adamant!) I let HMRC have a transcribed version of the telephone conversation the Inspector had first made to the taxpayer. By the end of this enquiry HMRC Head Office agreed to write a formal apology to my client and pay all the accountancy fees which ended up around £2600. It was strange really as this was what HMRC originally wanted to fine the client for an innocent but silly mistake on the return he completed himself (which HMRC's computer should never have accepted in the first place).

My concerns about HMRC behaviour are based on 20 years of dealing with HMRC on a daily basis and numberous experiences like the one summarised in the paragraph above.

It was interesting following the latest news last night on the missing computer records which HMRC sent unrecorded delivery on two CDs with only password protection that can be easily broken.

HMRC confirmed last night that the data was not encrypted in any way?

Pressure on Alistair Darling to resign following the resignation of Paul Grey now ex Chairman of HM Revenue & Customs?

Mr Grey clearly has an accute sense of leadership and responsibility as although not directly responsible for the error never the less he resigned.

Mr Darling has been Chancellor of the Exchequer since 27 June 2007. Thats around five months. Gordon Brown however was Chancellor of the Exchequer from 2 May 1997 to 27 June 2007 which is over 10 years. Having had plenty of time and exercised his authority over HM Revenue & Customs over such as long period, which is effectively put in place the systems and arrangements that led to this catastrophy surely it should be Gordon Brown doing the honorable thing and resigning?

Politicians these days just don't seem to be able to be honest, responsible or honourable. Will we see Mr Brown's resignation? A newpaper article yesterday likened Mr Brown to Mr Nixon the previous US President. A control freak, arrogant and unable to see outside his own little world and box. So on that basis it is probably unlikely we will see Gordon Brown do the honourable thing as Mr Grey has.

The last Chairman of HMRC resigned around two years ago over issues to do with fraud on Benefits and Tax Credits. Who was the Chancellor of the Exchequer at that time? Gordon Brown of course.

What about the Data Controller responsible for HMRC have they resigned, the immediate line of management responsible for the "junior" member of HMRC who posted the data. There must have been instruction all the way down the long chain of management in HMRC? Will we ever hear? I doubt it.

HMRC has confirmed now that 41 laptops have been mislaid or stolen in the last twelve months, or that is the number they have admitted to.

Around half the Citizens of the UK's bank and personal details have been lost by a key Government Department so recklessly (HMRC) and Mr Grey is the only individual that has resigned? It is simply amazing.

On BBC Newsnight last night a professor on the team who has advised Government over the last few years about data security issues confirmed Government has already been warned this was a disaster waiting to happen. Government had been advised on numberous occassions and in numberous reports of the dangers and pitfalls in the data security issues. Yet apparently Government repeatedly ignored the advice they were being given.

Frankly there is no point in fining HMRC for the errors under the Data Protection Act as the very taxpayers who have had there personal details exposed by HMRC will effectively pay the fine. So what is the punishment?  Data Protection offences are a criminal offence. If HMRC is to learn its lesson then presumably the only punishment available is Criminal Prosecution. As Chancellor for the last 10 years presumably Gordon Brown should be questioned and held to answer publically exactly what advice he was ultimately responsible for ignoring over the last 10 years about data security?

This is sadly very unlikely to be the last data security breach by either HMRC or other public departments.

Can Mr Darling sort this out? Personally I doubt it based on his first Pre Budget speech? Poorly conceived tax reform seems which seem to be a shot from the hip are the name of the game with Mr Darling. He is already back tracking as clearly on reflection he realises excactly this following announcements since the Pre Budget speech.

Over the last few years it has become clear, and particularly in the latest Pre Budget speech that Government does not like small businesses which are the foundation of our community in many ways. There are little incentives to run a business these days but plenty of red tape and fines and penalties and it gets worse year on year. Businesses collect PAYE and VAT for HM Revenue & Customs as unpaid collectors. They also pay Corporation Tax or Income tax and National Insurance on their profits. Businesses create employment which leads to more taxes being paid and a reduced burden on the state in benefit terms and the like.  Yet time and again, year on year the Government and indeed HM Revenue & Customs attack business, particularly small to medium sized businesses. I have seen it numberous times every week as a practicing Chartered Tax Adviser. After 20 years in practice it is for sure the worst it has ever been and if I am honest I only see it getting worse as I cannot see any signs of any changes that will improve.

While we are on this subject what exactly is the difference between Tax and National Insurance? Surely it is just then easlier to say the basic rate of "tax" is 22% which in worldwide terms is quite low. As National Insurance and tax is nearer 30% (and that ignores Employers NIC at 12.8%!) and if you add the VAT you pay then your annual overall tax rate is likely to be over 30%. A other "taxes" like fuel duty and various other "duties" which are all effectly taxes and many of the population pay in excess of 50% of what they earn in tax. Add Inheritance Tax, Stamp Duty, Car Tax and you surely just start to wonder where it all goes?

The government or course need a lots of taxes. Lending £30 Billion (some reports say this could increase to over £40Billion) to Northern Rock (and presumably similar sums the next few banks to "go" under the credit crunch) is partly what they are going to need your taxes for. Much of this may never be recovered. Presumably tax will have to now rise to pay for the Governments economical failings and misjudgments.

These days I rarely see any respect shown towards taxpayers by HM Revenue & Customs (or Government) but this is really a reflection on the Treasury and the way the Exchequer (Gordon Brown) has run HM Revenue & Customs for the last decade.

There is no doubt more bad news to come over the next year or two. Northern Rock seems to be in much worse problems that first thought, Paragon now has similar problems and if anyone seriously thinks these will be the last of the banks to be hit severely by the credit crunch and fundamental economical problems we are now seeing frankly they just have their fingers crossed or head in the sand.

This again comes back to Gordon Brown. As Chancellor of the Exchequer for 10 years when we now see the legacy he has really left is he really fit to be Prime Minister?

The pensions system has been wrecked in the last 10 years. There are record levels of borrowing and repossessions are rising fast. Credit cards debts are now at their highest. And we have not yet even seen particularly high rises in interest rates. What would happen if interest rates went up 2% which would still historically be low interest rates? Are we seriously saying that interest rates will never be 8% plus ever again? Or that by the time they are borrowing will be much lower or wages much higher?

Is there not at some point the biggest economical social disaster in the last 100 years or more inevitable? And who has been in charge of the economy for the last ten years during which the majority of the increases debt has arisen? It all comes back to Gordon Brown's door. No wonder he sat quitely in the House of Commons yesterday while Alistair Darling had to apologise to the Nation for the incompetence over a major Government department giving rise to a ludicrous major security breach of massive proportions. 

Sadly it is the "feel good" factor that politicians crave and love so much. It is why the economy is fickle. It is like politicians basically. Serious planning and forward thinking is relegated to second place. Increased debt leads to "assets" though not in real terms as the debts largely cancel out the assets. Credit cards debts particularly usually incurred to buy depreciating assets usually and luxuries like holidays? Of course this is not Governments responsibility?

It might have been wise for Gordon Brown to have called a snap election aready as sadly the news over the next few years at least, both Governmental and economical, is not really showing any signs of improving.  

It seems that HMRC are having yet more problems maintaining and protecting important records, not for the first time either, which has today lead to the the Chairman of HM Revenue & Customs Paul Grey resigning. It has not been confirmed if other HMRC staff directly responsible for the lost of such important data have also been held to account. 

The resignation is over the issue of lost computer disks containing personal details of 25 million individuals and around 10 million bank accounts in relation to Child Benefit.

Records included names, addresses, dates of birth, national insurance numbers.

The Chancellor of the Exchequer, Alistair Darling, today confirmed that the discs had been lost whilst being transported to the National Audit Office by unrecorded and unregistered post. 

The records were posted by a junior member of HMRC staff and on finding the records did not reach the National Audit Office HMRC was kind enough to post them a further copy although the second time they were posted recorded delivery which the Parliamentary Statement confirms is still incorrect proceedure.

You might think this is April the 1st? Unbelievable?  

Not really as this is not the first offence.

Mr Darling has started to the House of Commons today:

"In addition, the House will be aware of other data security breaches by the HMRC, including at the end of September the loss of records of around 15,000 people in transit by HMRC's external courier and in the same month, a laptop and other material containing personal details relating to HMRC customers was also lost."

Click here for the link to the Parlimentary Statement.

It would seem that this is a clear breach of the Data Protection Act if you want to make a complaint to the Information Commissioner here is the link to the form - click here if you are concerned about your own records.

There are heavy fines for breaching the Act and even imprisionment the Information Commissioners website states:

"Persistent breaches of the Act

A data controller who persistently breaches the Act and has been served with an enforcement notice can be prosecuted for failing to comply with a notice. This offence carries a maximum penalty of a £5,000 fine in the magistrates' court and an unlimited fine in the Crown Court."

Mr Darling commented today:

"I have kept the Information Commissioner informed. It is highly likely that there have been breaches in the Data Protection Act. That is something the Commissioner will investigate."

The public will have to wait and see if any action is actually taken by the Information Commissioner as now this is at least the third breach of security by HMRC in a matter of months, that they have admitted to, and clearly no lessons have been learned from previous errors and the personal security of taxpayers does not, on the evidence to date, seem to be taken at all seriously by HMRC i.e. repeated breaches of security. Whether HMRC will now be served with an enforcement notice by the Information Commissioner is the question or will we have to wait for the next breach of security?

Well it is Monday morning and was hoping to start this week with a positive post.

Sadly that is not to be the case.

On the radio this morning amazement and dismay that the Lord Lords can claim expenses of up to £300 a day for attending the House of Lords but that they are not required to have receipts for their expenses due to a "loop hole" in the law.

So when Mark Prisk MP made the following comment in Parliament about the disgrace of HM Revenue & Customs not having kept records of their costs and expenses relating to the Arctic Systems case which they lost in July as follows:

“While hundreds of thousands of small family businesses struggle under the weight of red tape imposed by the tax man, the very same organisation appears to be incapable of the most basic record keeping."

"One can’t help but wonder if this case and its associated costs starkly illustrate the gap between the Revenue and people who are trying to run businesses properly and efficiently.”

He forgot to mention the Law Lords expenses that they don't have to keep records for either.

Lets not get on to the subject of MP's expenses as otherwise this post will turn into a book...

It might sound like I am moaning and is the moan founded?

In todays post I have an HM Revenue & Customs enquiry letter into a client's case for a firm of Accountants I supply consultancy services too, as HMRC Enquiries is one of my specialities.

Suprise suprise HMRC ask in their letter for all bank statements, all receipts for expenditure incurred and all cheque stubbs together with full evidence of income.  Basically every single piece of paper for a full tax year. 

Dear old HMRC also ask why three property disposals are not on the tax return. Clearly the Inspector has looked as the return in detail as she mentions figures etc. Perhaps the lady Inspector concerned was partly asleep on the day she wrote the letter as the return clearly shows the client does not live in the UK and is non resident as stated on the Non Residence Pages to hins return. Therefore the taxpayer is not liable to capital gains tax on that basis does not need to show these disposals on his return. Some Inspectors (many Inspectors actually) just seem to like wasting taxpayers time and money with silly or petty questions. A bit more care and consideration would not go amiss?

This pleasant Inspector has also given this taxpayer a generous four weeks to get all the information to her despite the fact he is non resident, and from the date on her letter must have sent the letter late or third class post which has also eaten into the time allowed for my client to reply. She even mentions the fact the taxpayer lives abroad and refers to his address.

Simply amazing.

So I start my week in dismay at our wonderful, fair tax system here in the UK.... 

The title of this article may seem somewhat harsh and strong but in this particular case I think if anything it is an understatement.  My blog post today comes back to the recent Arctic Systems case involving the husband and wife Mr and Mrs Jones which HM Revenue & Customs lost at the House of Lords in July 2007.

A brief summary of this case history is that HM Revenue & Customs raised assessments to tax dividends received my Mrs Jones on her husband Mr Jones who was the fee earner for the company. The amount of tax involved was approximately £7000. After years of battling and the stress caused to this particular taxpayer over such a small amount of money the whole sorry saga is a public disgrace.The House of Lords ruled in favour of the taxpayer clearly as HM Revenue & Customs were wrong in their interpretation of the law (which is not at all uncommon these days) and yet HM Revenue & Customs further heaped shame on themselves and demonstrated total arrogance with an immediate announcement "we will now change the law", as I have said before it strikes of a baby throwing it's dummy out of the pram.

I read an article in Tax Adviser the Chartered Institute of Taxation's monthly magazine that in a joint meeting between tax advisers and HMRC one adviser referred to the relationship of tax advisers and HMRC like two warring parties throwing rocks at each other across a ravine. It is no wonder why when you look at this and a host of other cases.

So why a "hypocritical public disgrace". For anyone reading this article that has been involved with a case in detail that has gone to tribunal or court, as I have representing a client within the last year, you will know that even after costs have been awarded against HMRC, as they have in the Arctic Systems case, HMRC will try and wiggle out of paying the full costs. A case I was involved in HMRC did everything they could to avoid paying the costs even after they had agreed as the door to the tribunal to allow our claim if we dropped our appeal. We made that withdrawal of our appeal conditional on HMRC paying full costs. I was frankly shocked and dismayed by what then followed as HMRC tried to find any way they could to back track on that agreement. Eventually HMRC did pay costs but not full costs. HMRC have now confirmed that they do not have records of the time and costs HMRC incurred in the Arctic Systems case. Why is this a total disgrace well I have absolutely no doubt from personal experience that HMRC will be fully expecting Arctic Systems lawyers to have detailed accurate and lengthy details of every minute they are claiming costs for.  So if the taxpayer has to do this in legal cases what makes HM  Revenue & Customs exempt from justifying their time? I cannot express in words just how shocking this is. "Research" time reviewing other cases that may be quoted for instance can be difficult to claim by the taxpayer as you are expected to a degree to know all the law (which is constantly changing and shifting) without having to spend too much time reviewing cases. Bearing in mind that just four other cases to review could be a ream of A4 paper (a bit like reading a Harry Potter book two to three times over) this is ridiculous.So for HMRC to expect taxpayers and their advisers to fully justify the time they incur in a legal argument in details but HMRC keep no records of their time at all? Is this really a fair way to "do battle"? I think not.

What’s more, and many ways worse is that the taxpayer will know that Arctic Systems lawyer’s time and costs are justified as there will be detailed records. However we will never know what resources HMRC spent on the Arctic Systems case. The reality is that HMRC have some idea but are simply too embarrassed to say what that might be as the costs could be two to three times to costs incurred by the taxpayer taking into account the overheads, staff and other costs of HMRC staff involved in the case.

In Parliament Mark Prisk MP made the following comments:

“While hundreds of thousands of small family businesses struggle under the weight of red tape imposed by the tax man, the very same organisation appears to be incapable of the most basic record keeping."

"One can’t help but wonder if this case and its associated costs starkly illustrate the gap between the Revenue and people who are trying to run businesses properly and efficiently.”

You wonder why tax advisers have lost respect for HMRC?

Arctic Systems costs are in the region of £500,000 which are to be paid by HMRC (and therefore taxpayers as a whole) and all over £7000. HMRC had already said they were not planning to treat the case as a test case so exactly what was the point of incurring what must be easily in excess of £1,000,000 costs including HMRC time and resources all over £7000? What I find particularly shocking about this example of HMRC behaviour is that the case I am involved in, and which has been partly settled by HMRC (i.e the VAT and simple interest) was for a claim of £213,000 (including simple interest) and the taxpayers costs were legitimately £150,000 which represented the costs of two detailed, technical hearings preparation of detailed trial bundles and preparation and argument of the case, numberous meetings including with HMRC to try and settle the case out of Court over a three year period. HMRC paid approximately a third of costs, as they thought this was the reasonable fee costs, despite agreeing to settle full costs at the door to the Tribunal. The client was left with little choice than to agree as the cost of going to a further Costs Hearing would have simply added to the cost for the client so he decided to cut his losses and accept. I certainly hope the client succeeds with the Compound Interest Claim as for that particular client that would mean justice in more ways than one after HMRC's behaviour in that particular case. One of the key documents in the trail bundle had even been changed by HMRC in the case I have been involved with recently. It is one of the most shocking of the many shocking examples of dealing with the taxman I have had in my 20 years as a tax adviser.

One thing about the Arctic Systems case that potentially it could help taxpayers with future arguments with HMRC about the level of costs. If HMRC are prepared to incur a total of around £1,000,000 or more costs all over an amount of tax of £7000 then surely the level of costs in tax cases from now on have nothing to do with the level of costs involved. In the case I was involved in HMRC was using this as one of it's arguments i.e. that costs were out of proportion to amount of tax at stake? Surely this type of argument is not totally flawed after Arctic Systems? It is I believe quite a common argument HMRC like to put forward. What starts a reasonable costs in a claim against HMRC can often spiral due to the way HMRC like to handle disputes. Often they try and corner taxpayers to the point that they hope taxpayer will backdown for fear of the potential costs involved. We would see many more cases before the courts if taxpayers could afford to argue their point in court.

There has been talk of someone taking responsibility in the Police for the Jean Charles de Menezes shooting and public dismay that after the recent rulings that no management officers of the police will be. It seems that increasing public authority figures are reluctant to take responsibility for major errors of judgment or management. Should heads roll over the Arctic Systems case which is an extreme example of wasted public funds? The point I think here is that if HMRC are not accountable for their behaviour and actions won't they just continue in the same vain and will we not see a repeat of this waste over and over again? Have any senior HMRC staff been quizzed in parliament committees over how much public funds have been wasted on this tax case and other recent tax cases HMRC has lost? I doubt it. This is because waste is easy in public organisations as they are not spending their own hard earned money, they are spending the taxes paid by citizens of this country.

When HMRC are publically accountable for their behaviour, and this can be seen, is the time Tax Advisers and members of the public may gain some respect for HM Revenue & Customs but until then I personally only expect matters to get worse. As a Government department this is something that MPs as representatives of the citizens of the UK need to deal with and take some responsibility for and until then the Government is also culpable for the waste. 

On a happier note in the last few minutes of writing this blog post it has been announced that Glasgow has won it's bid to host the 2014 Commonwealth Games. Well done Scotland! Add this to a London 2012 Olympic Games and who knows maybe a Football World Cup in the UK and the next decade looks to have some exciting Sporting times ahead. A great example of the UK getting things right...