by In April, Telegraph Money wrote about the disturbing case of Benjamin Erridge who was forced by HM Revenue & Customs (HMRC) under threat from debt collectors, and against their own guidelines, to sell his home to pay a hugely inflated tax bill pay
I represented Mr Erridge at the hearing and beforehand. I won’t repeat what has already been written, but I want readers to know that HMRC’s treatment of him was not an exception but reflects the way the tax office behaves towards their ” small” customers with limited expertise and financial resources.
Twenty or more years ago, it would have been possible to work your way through a trivial case to find a solution that was fair and legal.
There have been some improvements in assessing taxpayer behavior in relation to penalties, but some rights and ease of appeal have been removed when HMRC get it wrong or are ignored.
The tax office has extensive powers which are likely to be used on the innocent taxpayer who made a mistake or did not understand that they should have done something when necessary. This is even worse when the mistake stems from HMRC error and disorganisation. The responsibility and burden of proof then passes to the taxpayer.
An obvious example is the “high income child benefit charge”.
The system for paying the correct amount of child benefit (which deducts the most you earn) could and should be much simpler. Instead, it creates a problem for the taxpayer and then HMRC expects the taxpayer to sort out the mess afterwards.
This required the taxpayer to be aware of their tax affairs and to inform HMRC that they had a tax liability.
In the vast majority of cases. the taxpayer is employed and treated under PAYE. They usually did not have to complete a tax return. They would not have tax advisors and would have a very limited understanding of their tax affairs as it was always dealt with before they receive their net payment into their bank account.
HMRC operates the child benefit agency so we have the odd situation where HMRC knows about your employment earnings and the amount of child benefit you owe but does not raise an assessment at the time, preferring letters A psychological nudge is issued and said. national campaign
If you didn’t have an accountant, you wouldn’t know about it.
So the inevitable happens. Fast forward to, say, eight years and you get a nudge letter telling you that you may have to declare and pay back taxes and provide information to HMRC that the taxman already has.
You may even need to request this information from HMRC to provide it back or be seen as unhelpful, especially if you’ve changed jobs and no longer have access to your payslips online.
HMRC then informs you that they cannot take action against you at the moment as it is waiting for the law to change following a loss in the upper bench tax courts (HMRC v Jason Wilks [2021]). That change in law becomes retroactive.
Meanwhile, if you have an accountant, they won’t be able to charge anything like a realistic amount for the work that was required.
HMRC is unable or unwilling to apply the law or does not believe in it or its own guidance or to initiate any of the various safeguards provided by the law and guidance. Instead, he informs you of his rights and refuses to make a repayment plan because you are not earning enough money.
In the meantime, he apologizes that you didn’t get the assessments he thought he’d post. And, of course, you should have appealed within the correct timescale. The debt collector is now knocking on the door and will not listen to reason.
Fortunately, you can appeal to the independent tax tribunal courts. You may not win, and the professional costs will be enormous.
You can appeal yourself as there are no court fees but you are not a tax expert.
HMRC fully understand that you may not have the resources to defend yourself and that is all part of the psychological warfare being played out here between David and Goliath.
Therefore, the options before the taxpayer were:
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Pay HMRC by selling the house and leaving your wife and children without their home.
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Fight it and find yourself in more trouble with a professional services bill if you lose. Even if you win you may find yourself in the same situation as before as the fees are likely to exceed the savings especially if the amounts in dispute are relatively small.
Thank God we still have the right to appeal to the independent tax tribunal.
Most of these cases never go to tribunal because of the costs and risk involved. However, they would not have had to go to tribunal if HMRC had followed the legislation and its own guidance and it would have been more reasonable.
Unfortunately, we are seeing a behavioral change in the way taxpayers are treated and it is not in a fair direction.
Perhaps we should be able to judge HMRC’s own behavior as to whether it made a mistake as a careless, deliberate, or covert error, as it does to taxpayers. If you are going to expect behavioral performance targets from taxpayers, you should at least be able to meet those standards yourself and lead by example.
The case I handled for Mr. Erridge was a tragic one but it was by no means isolated. I want to thank the bench judge for restoring justice.
Keith Alden is a chartered accountant at Mason & Co
