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Replies to Queries - 2 - Insult and injury?

18 December 2002
Issue: 3888 / Categories:

In January 2002, I sent the accounts and income tax return for 2000-01 for a new client to the Revenue by special delivery post. There was nothing particularly difficult about either the accounts or the return. Despite numerous telephone calls and letters to the Inspector during the next seven months, I was unable to obtain any sensible response from him as to why he had not agreed them. Accordingly, in September 2002, I was obliged to complain to the Adjudicator's Office.

In January 2002, I sent the accounts and income tax return for 2000-01 for a new client to the Revenue by special delivery post. There was nothing particularly difficult about either the accounts or the return. Despite numerous telephone calls and letters to the Inspector during the next seven months, I was unable to obtain any sensible response from him as to why he had not agreed them. Accordingly, in September 2002, I was obliged to complain to the Adjudicator's Office. This resulted in my client's tax affairs being agreed without question and a two-page letter from the Revenue full of abject apologies.

I made a claim to the Revenue for costs. This has been agreed, but the Revenue stipulates that any claim must be submitted by my client and not by me, the agent. I have replied that to ask my new client to pay a further account for my additional work, caused by the appalling way in which the Revenue has dealt with this case, and then to tell him to enter into negotiations for reimbursement would be the ultimate case of adding insult to injury. The Revenue is adamant. What is my next move?

(Query T16,129) - Judo.

First of all, it must be remembered that any payment of costs by the Revenue is not statutory, but is in effect concessionary and pragmatic.

The normal procedure is dealt with in Inland Revenue Booklet, COP 1, Putting things right when we make mistakes. In reply to the specific question raised, the Revenue states that compensation will not usually be paid direct to the agent. However, in exceptional circumstances (for example, when the mistake has affected all or most of a practitioner's clients) the Revenue may consider paying the compensation direct to agents on behalf of their clients.

The Inland Revenue's Redress Handbook confirms that Revenue practice is not 'set in stone'. At paragraph RDH 7.4.5 the manual states that the actual payment of the fees by the client is a good test of their reasonableness (though not the only one). Revenue officers are therefore instructed to pay agents' fees direct to taxpayers, and only when the fees have been invoiced and paid. The manual states that the straightforward way of verifying this is to ask to see receipted bills, but the officer can use his or her discretion not to do so if he is otherwise satisfied that reimbursement is fully in order, particularly where the amounts are not large.

However, the manual also says that the making of payments direct to agents is not ruled out; for example where the taxpayer is unable to pay the fees because of unemployment. However, the Revenue officer still needs to be satisfied that there were genuine business and invoicing arrangements between the agent and the client for the fees to be paid.

The Redress Handbook goes on to say, at paragraph RDH 7.4.10, that in the exceptional cases where payments are made to agents, the VAT status of the taxpayer should be taken into account in deciding whether or not to add VAT to the reimbursed fees.

There is a similar approach in leaflet AO1 issued by the Adjudicator's Office, which states that compensation is normally paid to the taxpayer, and not the agent, except in exceptional circumstances.

This issue has been referred to occasionally in Taxation magazine. Graham Sillett confirmed the Inland Revenue's approach in a note on 30 September 1999. However, the article by Jonathan Shine 'Tales of the Unacceptable', published on 15 August 2002 at pages 543 to 544, is of particular interest. He mentioned five actual cases where compensation for the Revenue was claimed. In two cases the Revenue was prepared to pay him, concessionally, rather than the client, instead of the strict procedure of having to bill the client first.

Reading between the lines, the requirement to bill the client first is an attempt by the Revenue to prevent practitioners from submitting inflated fees for compensation matters. Why not suggest to the Revenue that, if you were paid direct, the fee would be X, but that if the client was billed first, the additional administration would make the fee X+1? A reasonable Inspector ought to see the logic of this, but you may not succeed. It is all a matter of friendly negotiation at this stage.

Finally, have you considered asking for a consolatory payment to be made to the client, because of the particular circumstances of the case? This issue is dealt with on page 4 of COP 1 and also in the Redress Handbook at paragraph RDH8. - Magnus.

 

The Inland Revenue's Code of Practice 1 details the procedures for putting things right when it makes mistakes. Under the complaints procedure, any extra costs that the taxpayer has had to pay as a direct result of the Inland Revenue's mistake or unreasonable delay can be claimed. In my experience, the Inland Revenue does insist, as in 'Judo's' case, that the extra costs are invoiced and paid before it will consider reimbursing the taxpayer. This does of course add insult to injury and does not assist in the Inland Revenue's attempt to apologise for unreasonable behaviour.

I have, however, on numerous occasions been able to receive costs directly from the Inland Revenue. This has been achieved by sending the invoice to the Revenue explaining my appreciation that costs usually need to be paid by the taxpayer before reimbursement, but due to the Revenue's maladministration my client has assumed that I have not been acting in his proper interests. Consequently, my client is not prepared to pay the invoice as he does not see the point in having to pay it only to be reimbursed, and it would cause further strain on the professional relationship between myself and my client if I were to insist on payment. Therefore, would the Revenue please consider settling the invoice direct, which will of course not be taken as a precedent.

The fact that 'Judo's' client is a new client helps even further with this course of action which has been successful many times, although I have unfortunately still had the odd Inspector who refuses to pay the costs direct, but at the end of the day it is the taxpayer who wins. -Beacon.

Editorial note: Several respondents felt that 'Judo' had a rather flimsy claim to reimbursement of fees as a result of poor service by the Revenue and was lucky to receive an apology. It was pointed out that, under self assessment, there is no necessity to seek the Revenue's agreement to accounts or the return. Agents must remember that after having been 'logged in', unless a repayment is in point, returns are generally processed on a 'first come, first served' basis and this may even be done in another office.

Issue: 3888 / Categories:
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