Tax is a strange world and it seems to get stranger by the year.

If you have ever had a tax enquiry into your affairs from HMRC you may well have experienced just how aggressive they can be  and how intimidating it can be. We will save that one for another article on this blog. It is certainly an area where it is important to get advice from a tax adviser that is experienced at dealing with Tax Enquiries. Having dealt with a fair number of tax enquiries in my time I do not think tax enquiries should try to handled by the inexperienced on their own. I recently handled a case where HMRC were demanding around £300,000 (plus interest and penalties of course). Two and a half years down the line I extracted a written apology from HMRC. The final agreed tax error was around £1,500 for a company with over 100 staff and a turnover in the millions that already pays a substantial amount in Tax, PAYE and NIC. An innocent mistake. HMRC have now paid a third of my fees and frankly I think they have got off lightly.  It seems to me clear that the cost to the public purse of that (and many other enquiries) is substantially more than the extra tax recovered. This is not the first time I have made a formal complaint against HMRC behaviour in an enquiry. It is the second or third and I would say that HMRC are intimidating or try to be in probably 80% or more of enquiries in my experience. In almost 99% of cases I have dealt with so far HMRC have also been wrong on major issues, and shown to be so. On another occasion HMRC paid all of my fees, paid the client compensation and HMRC Head Office sent a written apology. You need to be firm when dealing with rogue officers from HMRC is the moral of the story. Get good advice, have a clear understanding of your rights and the tax law you are arguing with HMRC about.  

It seems that HMRC accepts that this is how the majority of tax advisers seem to view HMRC Tax Enquiries as some of their latest podcasts are stating that HMRC's relationship with accountants and tax advisers is something they want to improve and accept could have been better. I think that after 20 years in the profession it seems to me this is very true. Frankly HMRC are the ones that have earnt themselves this poor reputation and it will take a lot of honesty and work for HMRC to recover peoples respect. HMRC are often rude in my experience, often poorly trained, bullying of taxpayers is common place and more so there they do not have tax adviser acting for them. A heap of other factors have lead to HMRC developing such a poor relationship with the people with whom it does business. It will be interesting to see if HMRC are actually serious about this issue. Time will tell but I have my doubts. There is a tremendous amount of arrogance and disrespect for taxpayers and their advisers from HMRC. Perhaps what HMRC need to consider is that actually their wages, that of the government that supposedly controls HMRC (I often have my doubts about that too!) and of all the other civil servants which are funded by the tax paid by taxpayers individual and corporate. I can already hear HMRC laughing at this cooment which kinda proves my point.

Link to HMRC Podcast: http://podcasts.hmrc.gov.uk/audio/03-HMRC_Podcast_Fresh_Start.mp3

The recent Arctic Systems case involving HMRC's long running attack on family businesses (not for the first time) which they lost at the House of Lords supposedly cost the public taxpayers purse over a £1,000,000 in legal and other costs for HMRC to pursue the case. I read one report that the amount of tax at stake was a fraction of this cost. I read another report that HMRC (thinking they might lose the case) said only weeks before the decision was due that they might not rely on the case when looking at other similar cases anyway? What? What is the point of taking the case to court then? Taxpayers are expected to accept a legal decision so why can't HMRC? Arrogance. Government writes law HMRC are simply there to enforce it and collect the taxes.  The law has been in place for a very long time so having lost you might think that would be the end of it? Well like a baby throwing its dummy out of its pram  almost immediately HMRC stated that having lost it would change the law? Does HMRC write the law? This statement is truely amazing as totally sums up the way that HMRC views it powers.  Was this actually what the government or HMRC was saying? Who actually is in charge of tax legislation. It has always been my understanding that Government writes the law and HMRC has to enforce it. It is a true example of the total arrogance of HMRC in its present stake.

AccountingWeb.co.uk has reported:

"The Professional Contractors Group (PCG) estimates that HMRC incurred costs of over half a million pounds in pursuing Geoff Jones to the House of Lords over a disputed sum of £7,000. The Government, meanwhile claims it doesn't know how much the case has cost and has admitted that no records were kept of the time and overheads relating to HMRC employees who were working on the case.

Costs were awarded against HMRC at the hearing earlier this year, which means that ultimately taxpayers will foot the bill."  Surely this is a total disgrace in terms of public funds.

In the three years leading up to September 2006 I was involved in heading up a VAT Tribunal case involving the VAT reclaim of VAT on demonstrator cars following the Marks & Spencers case. Eventually we called on the services of a Tax Barrister and after a long battle HMRC conceded the point and agreed to refund the VAT at the door to the Tribunal. They agreed as a condition of us withdrawing our appeal that they would settle full costs. What then followed was another long and unpleasant battle for HMRC regarding the justification of our costs despite the fact they had dragged the case out and then admitted effectively that they were wrong all along at the door to the Tribunal. Timesheets detailed justification and analysis was required to justify the costs claim. Despite only agreeing to settle at the door of the tribunal on the basis that HMRC would pay full costs they still subsequently tried to wiggle their way out of paying costs, landing my client with yet more costs. Eventually they settled costs. I ask how on earth then can HMRC say they have no idea what their costs were in the Arctic Systems case? Exactly just how much taxpayers money has been wasted? Have those within HMRC responsible for the huge waste of funds had to now justify their positions?

Interesting if you have a VAT case (or other tax case) bear in mind now the Sempra Metals case and consider your claim for Compound Interest! No doubt another long drawn out battle to be expected on that front. Just goes to show HMRC are often not right. 

If a director of a company had wasted so much company/shareholder funds on an issue in the way it was in Arctic Systems by HMRC they would probably have had to resign or been sacked. HMRC should be more accountable. Government ministers responsible for HMRC need to be accountable. That way we might see less waste and arrogance within HMRC. Can we expect that from ministers? Despite HMRC's podcasts saying they want to improve their reputation I just cannot see this happening when behaviour like that in the Arctic Systems case is more common place than ever before.

Gordon Brown does have a lot to answer for in this area. His time as Chancellor was a period of a blurring of the the tax legislation. There are so many instances now that experienced qualified tax advisers cannot say to a client whats the correct answer without doubt. This is intention by government it seems. Changes in the law are actually designed to make the law wide and open to varied interpretation. So where does this leave taxpayers with difficult decisions to make about day to day issues. It can only be becuase if something is not certain it increases HMRC's chance of sqeezing a little extra tax out of you later? What other reason could there be for lack of clarity?

It is time that the Government took tax a bit more seriously. How many times have I felt and heard other tax professionals stay that HMRC shoot from the hip. Quick shots with little thought and little aim?

Some clearer waters would be a good thing and a lot fairer on taxpayers as after all if their interpretation of the tax law is wrong HMRC will quickly be after them for penalties and interest on revised payments due. A lot of other law in the UK is clear what is the logic of tax law not being totally clear?   Perhaps a head of HMRC who has been a successful business leader from a successful company might bring an inkling of sence to HMRC at times.

Clearly HMRC has a job to do. Tax is not going to be abolished in the UK and therefore a Government Department is required to collect and police it. My point is how that is done.

Following a recent case that I took to the General Commissioners I asked whether there are financial incentives for Inspectors dealing with enquiries, as that could expalin why so many HMRC are so determined to try and prove their point and hound taxpayers where they simply do not have a case or their case is very weak. This has been reported in the Press including in the Daily Mail. I have asked this question of a number of Inspectors during enquiries. Most have denied it. One admitted that there are incentives. As this had been reported in reputable press I found it strange they did not all admit it (but I was not suprised) and perhaps it it is time HMRC made public their policy on incentives to HMRC staff.  Incentives could well explain why so many Inspectors are so aggressive and often unreasonable with taxpayers now. Come on HMRC/Government come clean on this issue becuase the public have a right to know.

We will have to see now with the new Chancellor (Alistair Darling at the time of writing this article) whether tax law  get clearer or more unclear, fairer or less fair. As a citizen is expecting clarify of law and accountablity of HMRC unreasonable?

This article was submitted by: 

John Cotter CTA ATT

A Practicing Tax Adviser & Managing Director of Tax Publications Limited John is the driving force behind a number of other online tax projects including:

Founder and Editor of the newly launched www.taxationjournal.com a tax journal where tax professionals can submit their own articles on any tax issues for the benefit of the general tax community.

Other sites Tax Publications Limited has launched or is launching for the benefit of the Tax, Accounting and Legal Professionals include:

www.ukprofessionaljobs.com which is currently being developed to help cost effective accounting, tax and legal recruitment

www.taxdiary.co.uk which lists Tax Events, Tax Seminars and Tax Conferences in the UK

www.tax-directory.co.uk which helps Tax Professionals market their services to the general public

www.taxsupport.co.uk a forum for tax professionals.

John can be contacted via this site or by any of the other sites listed above.