29 July 2014
More on HMRC's proposed raids on taxpayers' bank accounts
The timing might be coincidental. However, within 24 hours of my posting my previous comments, HMRC manage to supply some answers to my questions.
QUESTION. Would it be possible to identify what amounts to a "contact" with a debtor? Does that include unanswered telephone calls? Does that include preliminary notifications (such as notice to file a tax return) or only 'communications' made/attempted once an amount has been fixed and no longer subject to appeal? How do HMRC classify posted correspondence if it is sent to the wrong address?
ANSWER "Contacts" would include letters, phone calls and face to face communication. HMRC's "campaign" approach to pursuing debt means that we use different interventions according to an individual's circumstances. Case Study 1, in the consultation document, gives an indicative illustration of the sort of approach we might take.
We are still consulting to make sure that our safeguards are appropriate, and have received some very helpful and constructive suggestions from expert bodies during the consultation. For example, one of the suggestions made was that HMRC should put in place additional contact before Direct Recovery of Debts is considered (for example, sending at least one letter by registered post, or a visit from one of HMRC's Field Force agents). We're listening to all proposals for safeguards and will consider these as part of the consultation.
The answer fails to answer the question fully. As examiners often complain, the candidate has answered the question that they would like to have been asked, not the actual question asked.
I wanted to know whether an officer telephoning a particular number and getting an engaged signal, getting diverted to voicemail or even getting an unobtainable signal would count as contacts. Regrettably, HMRC have failed to address that.
Ditto with postal communications that might be sent to an old address (or simply not delivered).
And there was no attempt either to explain which of the routine items of correspondence will count towards the minimum four “contacts” before bank accounts are to be frozen.
Are they ducking the issues? Did they fail to understand the question? In either case, it does not fill me with much confidence as to their ability to effect this proposal with much competence/fairness.
So now let’s consider the second question:
QUESTION. In the context of redress, Ms Homer told the Treasury Committee (and John Thurso in particular) that "consequential loss" might be recoverable by a taxpayer, depending on the facts. Is it therefore HMRC's position that in the situations postulated by the Committee, there will not be a blanket refusal to reimburse a taxpayer with more than the amount wrongly taken from the taxpayer's account (and reasonable professional fees incurred as a result)?
ANSWER This is something we have received various views on during the consultation and we will certainly consider in more detail.
I have no objection to HMRC considering matters in the course of consultation. However, it would have been more candid if HMRC had made it clear that the terms and the scope of compensation had not been fully considered and that HMRC were open to suggestions.
This, as will be seen, is applicable to my third question (next).
QUESTION. On the same topic, Ms Homer said that the recompense would be determined by a Court. Will the right of redress be built into the proposed legislation (and, if so, would the right be exercised in the First-tier) or was Ms Homer suggesting that a taxpayer would have to make a claim to the Courts under the existing law?
ANSWER As set out in the consultation document, the debtor will have several means of contesting the use of the Direct Recovery of Debts (DRD), and this will include a right of appeal to the court:
These simply misrepresent the question I was asking.
The third bullet suggests a further area where HMRC have not fully thought out the policy but failed to make this clear in the consultation document.
QUESTION. The proceedings before the Committee made reference to the taxpayer who folds his/her arms and refuses to pay what is due. How will HMRC be able to discriminate between those stubborn individuals and those who have genuine problems which have turned them into non-responsive taxpayers?
ANSWER. We've been very clear that this policy is targeted at those who've been contacted multiple times by HMRC to pay what they owe, have sufficient funds in their account to pay but are choosing not to do so.
The average debtor impacted by this policy will owe around £5,800 and have around £20,000 in their accounts. Debtors will have had multiple opportunities to get in touch if they believe they are being wrongly targeted or believe that DRD action will cause them hardship - that is why we have built in the appeals channels above, as well as ensuring that we give debtors the opportunity to contact us at any stage of the process to agree an alternative method of settling the debt. We will have a dedicated team in place which will review each case before authorising DRD action; we will undertake rigorous internal checks to ensure we have up to date information, and will verify this with the debtor's bank.
However, we do understand that there are some debtors who, for legitimate reasons, may have difficulties dealing with tax. This is why we're consulting on our safeguards, to ensure that they help to minimise the opportunity for error. We already have established processes for identifying and dealing with vulnerable customers, but we want to make we've done everything we can to help. As part of the consultation we're speaking to a range of customer groups representing vulnerable debtors, to understand how we can strengthen our checks and procedures in this area - and we remain open to suggestions of additional safeguards to achieve this.
I think that this answer can be summarised as follows: HMRC do not yet know.
QUESTION. Would it be possible please to let the professional bodies (and me) have a copy of the additional evidence provided to the Committee regarding the numbers of occasions in recent years that HMRC commenced court action to enforce debts. I would also like to know why these are not cost-effective given the ability to recover costs from the debtor and the fact that the legislation imposes penalties/surcharges on late payment. In how many cases did the judiciary refuse to give HMRC the remedy they were seeking?
ANSWER. When Lin Homer provides this evidence to the Committee, we're happy to provide you with a copy/link to where it's published on the Parliament website.
Of all the answers, this one surprised me the most. HMRC are proposing this new power because HMRC find the current procedures too time-consuming and expensive. (Those objections are in fact objectionable, but that is another matter.)
On 8 July 2014, Parliament asked HMRC to tell them how many times that they had gone to the Courts in the past few years and, to Parliament’s surprise, HMRC did not come armed with the data.
I had really assumed that the data would nevertheless be readily available somewhere at 100 Parliament Street and so it could be provided to Parliament without much delay. It is now three weeks later and (according to HMRC’s response to me) Parliament has not been furnished with this information.
That means one of two things: the more innocent explanation is that the information was not actually available – meaning that HMRC are complaining about the current process but cannot actually tell anyone how many times it has been used in the recent past.
The alternative is that HMRC have not considered it necessary to respond to Parliament all that quickly. That does not seem very polite in my view.
(Of course, there is a third option: that Parliament have been given the information but HMRC are misleading me. I prefer to work on the assumption that HMRC would not act in such way.)
In short, this response highlights further flaws with HMRC’s consultation and why the proposals should not be pursued.
On the other hand, HMRC seem determined to press on – despite the opposition from most quarters of the tax profession, the politicians and much of the press (I have heard suggestions that tomorrow’s press will contain more criticism of the proposals). The question that HMRC should be asking themselves:
Are the public servants there to serve the public or is the public meant to serve the public servants?
27 July 2014
HMRC’s proposed raids on taxpayers’ bank accounts
I am conscious that this “Blog” has not been updated particularly recently. I have been beavering away on the many issues that concern me whilst also trying to keep up with my work commitments.
On top of that, a new issue has emerged on which I have written, debated and tweeted. I have hitherto not turned it into a full “campaign” as I am still of the view that HMRC will not be allowed to take it any further because of the nearly unanimous objections raised from the tax profession and from MPs and the press. This is the “Direct Recovery of Debts” proposal where HMRC plan to side-step the Courts and help themselves to what they think taxpayers owe them.
However, as the consultation comes to a close (Tuesday 29 July), I thought it would be worth sharing a little anecdote.
I shall assume that readers will have a sufficient understanding of the proposals to allow me to dive straight into the subject. For those who do not, I would suggest following the link to an article by Paul Aplin (in the hope that it remains on freeview) http://www.taxation.co.uk/taxation/Articles/2014/07/22/328201/chorus-disapproval and to some of the articles referred to therein.
HMRC are concerned that there are individuals who can pay their tax but won’t pay their tax. Most in the tax profession are agreed that that approach should not be accepted and that ways should be found to ensure that those, who can pay, do pay.
14-day response period
As part of HMRC’s proposals, HMRC will secure a freeze over a taxpayer’s bank account(s), with a view to extracting the funds frozen in due course. HMRC propose to give the taxpayer 14 days to challenge their intended course of action (including the idea that monies are in fact owed, the amount to be taken and any alternative methods of payment).
HMRC currently consider 14 days to be sufficient (although I suspect that they have included that proposal in order to allow them to be seen to respond to consultation and extend it to 30 days in due course). That is 14 days from the date when HMRC write to the taxpayer. The start of the 14-day period is not deferred until the day in which the letter finally leaves HMRC’s offices and enters the postal system. It is certainly not deferred until the date on which it is delivered to the taxpayer’s address. In many cases, that will mean a loss of 7 days before one has even started. And that does not even take into account the possibility that the taxpayer is temporarily absent (on holiday, visiting relatives, in hospital etc) when the letter is received. Anyway, HMRC currently consider it perfectly reasonable to expect taxpayers to respond to such matters within 14 days.
As I have said, many MPs are vehemently opposed to HMRC’s proposals. For those who want to view senior HMRC officials getting a tough talking to I would recommend watching the proceedings of the Treasury Committee earlier this month. http://www.parliamentlive.tv/Main/Player.aspx?meetingId=15728.
For the discussion on HMRC’s proposed bank raids, one can scroll forward to about 11.05am.
HMRC’s current right to go to the Courts
In the course of that exchange, HMRC were asked how many times in the past year they tried to exercise their existing rights to secure funds from debtors’ bank accounts via the Courts. HMRC did not have that information ready to hand, but promised to supply it to the committee.
The CIOT/IFS debate
The following day, one of the officials (Jim Harra) who had been a witness before the Treasury Committee was a speaker at the joint CIOT/IFS debate on HMRC powers, which (given the concerns of many of those present that evening) focused particularly on HMRC’s latest proposals.
I initially thought that I would ask Jim from the floor whether he now had the information which HMRC did not have readily available the day before. However, I chose to save the question until I could have a one-to-one with him after the close of proceedings.
I told Jim that I had a number of questions where I sought further clarity about HMRC’s proposals and asked him whether I might be permitted to do so by e-mail. Jim accepted that I might do so and confirmed his e-mail address.
My questions for Jim Harra
A couple of days later (lunchtime on Friday 11 July), I sent Jim the following questions by e-mail:
I had expected a response within a few days.
I then sent a further e-mail last Monday morning (21 July):
In light of the fact that time is running out for the consultation, I wonder whether you have been able to find answers to the questions below.
With very many thanks
[The text of the original e-mail then followed.]
It is now Sunday 27 July. Still no response has been received from HMRC. And the consultation period is about to close.
It is quite clear that HMRC do not consider 14 days to be long enough to formulate a response. Even if the 14 days start from the date of receipt.
I am sure this is a case where HMRC can answer my questions. Unfortunately, they seem to have taken the view that they won’t answer.
The irony has not escaped me.
Appealing against that service company question
23 April 2012
Just received a response from HMRC. They agree that the question need not be answered, but do not address the fact that their computer systems require an answer.
However, it appears that HMRC will allow employers to answer Question 6 "No" "if they are unsure of their position".
13 March 2012
Last week I sent a letter to HMRC explaining why employers need not send in a P35 and would have a reasonable excuse for not doing so. Details to be published in Taxation in due course.
28 April 2011
Taxation article explains the history of the case. According to the podcast (starting after about 2 mins 20 secs), the editor thinks "HMRC must sometimes get fed up with Keith ... but I think he's great". I can honestly say that I do not intend to annoy anyone, merely want to ensure that taxpayers pay the right amount of tax in accordance with the law and that HMRC carry out their duties and exercise their powers in accordance with the law.
28 February 2011
HMRC write to me to say:
"a Notice under Section 8 Taxes Management Act 1970 to file a return is not an Information Notice under Para 1, Schedule 36, Finance Act 2008"
Therefore, my protective appeal can be withdrawn.
Furthermore, HMRC state:
"I can give you confirmation that we (HMRC) will not change that position without making a clear statement to that effect."
Therefore, I will not be required to make a protective appeal in future years.
Of course, that means, that one still needs to address the question as to whether or not the question needs to be answered so as to make a return complete. In the meantime, I am still of the view that the question need not be answered and will not answer it.
I have been asked a number of times this month about any developments in this regard. I can confirm that something is happening behind the scenes concerning my appeal, but it is probably best to wait until things progress a little further before I say any more.
In the meantime, I am still of the view that the question need not be answered.
Still heard nothing. So I unilaterally notify my appeal to the Tribunal. Perhaps that will get things moving.
I get the call back but the person still does not understand. Because of the backlog of post, he agrees that I should fax him a copy of my appeal and says he will try to get it dealt with ahead of the queue.
I thought I would give it 6 weeks. I then called my tax office which did not seem to understand the technical nature of my question. I ask to speak to a manager who is also baffled. However, he promises to get someone to call me back.
I also learn that it is possible that my appeal is sitting in a pile of post that is subject to a 2-month backlog.
Appeal went in just within the 30-day period. To save time, I also ask for internal review. That means I should hear something within 30 days.
The question has reappeared. I will appeal against it to protect myself.
My return has now been submitted with the question explicitly unanswered. My white space declares the question ultra vires.
Update 14 May 2009 - we have a result!
Day 30. I have now received a response from the Appeals and Reviews Unit, which I reproduce below.
Thank you for your letter of 14 April which has been forwarded here.
I have to inform you however that the service companies question within the 2009 self asssessment tax return does not constitute a notice under Schedule 36 Finance Act 2008. This being the case, no right of appeal arises under paragraph 29 of Schedule 36 and section 49A TMA 1970 does not apply.
HMRC consider that the service companies question is intra vires Section 8 TMA 1970.
The normal time limit will apply for the submission of your return.
So, we are back to where we were last year. Assuming that HMRC will honour the contents of the letter they sent me in every other taxpayer's case (and it would seem most unreasonable if they didn't), we can be assured that non-completion of the service company question will not give rise to an automatic £300 penalty.
For the reasons set out in my article in Taxation, 18 September 2008, I remain firmly of the view that the question is not a lawful tax return question and need not be answered. Unless someone persuades me otherwise, I do not propose to answer it (and will state the fact on the return itself).
Should HMRC deem my return incomplete and seek to penalise me, I will be prepared to defend myself.
I will naturally keep everyone informed of developments. In the meantime, thank you to everyone who expressed their support. Common sense has prevailed and we didn't need to recruit Joanna Lumley.
Update 13 May 2009
Still no response from HMRC. But they do have until tomorrow. Or even longer if they consider it reasonable to take the extra time. However, one person has told me that his appeal letter had been received and "sent to a more experienced officer to review".
Update 3 May 2009
I have had considerable feedback since first announcing my appeal - on the whole it has been positive. The only questionable comment was from a former colleague (a senior HMRC official) who told me that he and his colleagues had had "a good laugh" when reading this blog. Perhaps, he was merely telling me that there are some people at HMRC who appreciate witty and well-written articles on tax practice.
I had omitted to tell readers what they ought to write if they were intending to appeal the purported information notice. So the following link to a copy of my own letter should help: http://www.taxationweb.co.uk/tax-news/personal-taxes/tax-barrister-appeals-against-service-company-question.html. Other possible objections to the question include the fact that (being in the form of a tax return question), if the boxes are left blank, it is impossible for HMRC to know whether the question has been answered in the negative or simply ignored. In my view this reinforces the arguments that the question is not a valid use of the new information powers.
Anyway, no official response from HMRC to my appeal. But 19 days is not that long in the circumstances.
My sources confirmed that the service question that caused so much confusion last year would be repeated on individuals' 2009 returns. Fearing a backlog of work in April, I penned a draft letter of appeal which I filed away pending the issue of my 2009 return.
A bit later in 2009
After consulting my diary, I realised that my tax return might not get the prompt attention I would have hoped to give it. After all, it would ordinarily be issued on 6 April (a Monday this year) but I was going to be travelling on the Wednesday to spend the Easter Bank Holiday weekend with my in-laws and would then be travelling to Manchester to take a VAT case at the First-tier Tribunal there.
It would not be unheard of for the issue of the tax return to be delayed because of software difficulties, yet I wanted my appeal to be looked at without any delay.
8 April 2009
The sun was shining on me that morning and the postman delivered a brown envelope that would send shivers down the spines of most ordinary people. However, in between my packing and further preparations for the case in Manchester, I was able to revisit my draft appeal letter.
As many readers will be aware, I am firmly of the view that a tax return should be designed so as to include only questions that are statutorily permitted: in the main, this means the questions on the return should be directly relevant the calculation of an individual's tax liability for the year under review.
To put it another way, a return is not incomplete if no answer is provided to a question that does not go to the heart of establishing a person's tax liability for the year.
Or to put it a third way, HMRC do not have the right to ask additional questions merely on the grounds that it is administratively convenient (for them) for such questions to be addressed.
(Those readers who are familiar with the contents of the tax return might think of other questions that would fall within this category – for example, the questions that ask non-residents for the number of days that they spent in the UK or the question that asks for the number of one-off charitable donations in the year Whilst the latter question has some sort of justification (it ensures that an employee's PAYE code reflects only the employee's regular charitable giving), the former is designed merely to give HMRC fuel for any subsequent enquiry.)
This year, however, things are slightly different. Whilst the rules governing the content of a tax return are the same as in previous years, HMRC have new powers that came into force on 1 April 2009. In short, they permit HMRC to ask any taxpayer for any information "reasonably required by [HMRC] for the purpose of checking the taxpayer's tax position" (FA 2008, Schedule 36, para 1). To use old (i.e. pre-1 April 2009) terminology, Schedule 36 gives HMRC extended rights of enquiry, sometimes referred to as the 'Martini provisions': "any time, any place, anywhere".
Arguably, therefore, HMRC can justify asking me about the nature and sources of my income, although such requests must be reasonable. What is totally unclear, however, is whether an information notice under Schedule 36 can be embedded inside a tax return. Similarly, it strikes me as wholly unreasonable for every recipient of a personal return to have to address the issue.
Failure to respond to an information notice will give rise to a penalty of £300 (paragraph 39(1)(a), (2)), with daily penalties of up to £60 thereafter. In my mind, those penalties are a good enough reason to focus one's mind on the legality of the question. Furthermore, whilst it would be possible to raise some objections to the question at any penalty appeal hearing, the safer course of action would be to deal with the issue at an early stage, by appealing against the purported information notice itself under appeal provisions located in paragraph 29.
Such appeals must be made within 30 days of the purported information notice being given. Assuming that most tax returns would have arrived on 8 April 2009, this means that appeals ought to be made by 7 May 2009, although cautious taxpayers might aim for 5 May to be safe.
14 April 2009
Noting that my tax affairs are dealt with by a tax office in Manchester, I hand delivered my notice of appeal at the tax enquiry counter at Albert Bridge House, about 200 yards away from the tribunal which I was attending. I shall leave it to readers to decide whether or not that little distraction jeopardizes my claim for a deduction in respect of my travelling expenses on the grounds that I might have breached the "wholly and exclusively" test.
My appeal is a protective appeal on the basis that I do not believe that the question forms a valid request under Schedule 36. In fact, HMRC have not formally suggested that it is such a request. However, if they are to assert that the question is justified because of Schedule 36, then my letter stands as an appeal under the provisions of that Schedule.
Being a reasonable individual, I have not yet exercised my option to have the matter directed to the First-tier Tribunal. Instead, I have taken advantage of the new procedures that require an independent part of HMRC to review the case (sections 49A and 49B of the Taxes Management Act 1970).
The waiting period
The ball is now firmly in HMRC's court. Under section 49B(2) and (5), HMRC must set out and notify me of their view of the matter by 13 May 2009, or such longer period as is reasonable. The review must then be completed within 45 days of me being notified of HMRC's initial view (section 49E(6), (7)).
I will then have 30 days (should I so wish) to notify the First-tier Tribunal that I wish to have the matter determined by them (section 49G(2), (5)(a)). (If I apply to the Tribunal out of time, I might still be able to have the case heard but I would then have to ask the Tribunal's permission first. It is best not to go down that route if I can at all avoid it.)
When I hear any more, I shall let readers know.
Sharkey v Wernher - was Parliament misled?
28 February 2011
I was dissatisfied with the February response as it did not address the question (or deliberately side-stepped it). So, through my local MP, I made a further complaint in March 2010.
In June 2010, I received a letter from my MP advising me that my complaint had been dealt with. As I had not received anything from the Treasury, I enquired as to how the matter had been dealt with. It transpired that the alleged response to my March 2010 complaint was the February 2010 about which my March 2010 letter was complaining. I was getting the feeling that the Treasury were trying to avoid addressing the matter. So I pressed them further.
In October 2010, I received a letter via my MP from the Permanent Secretary at the Treasury. He claimed that if Parliament was given the wrong information, it was at least "not materially misled". Personally, I am not sure whether that was an admission that Parliament was misled to a lesser extent. However, once again, the justifications did not stack up when looked at with the facts. So I pressed again.
No response by 28 February 2011, despite a chaser letter earlier in the month.
5 February 2010
The Treasury has responded to me. They say that Parliament was not misled. However, they fail to explain why the Minister claimed (wrongly) that the rules had been requested by trade associations and the legal and accountancy professions. See http://www.publications.parliament.uk/pa/cm200708/cmpublic/finance/080520/am/80520s04.htm, column 311.
13 January 2010
A brief background: I am concerned that Parliament was misled during the committee stages of the Finance Act 2008 when the rule in Sharkey v Wernher was legislated.
Eventually, I made a formal complaint on 22 February 2009. That and a chaser in March were ignored. In April 2009, I asked the Treasury (under the Freedom of Information Act) how many other such complaints have been ignored. That request at least generated a response: I was told that my 22 February letter would be responded to "shortly".
Well today, I have been given an assurance that the response will be with me by 5 February 2010 - a mere 49 weeks after my complaint was made.
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