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A sad case
The First-tier Tribunal decision in Munn (TC6467) shows only too clearly what can happen when somebody gets into a mess over their tax affairs, and how the system can overwhelm them leading to a manifestly unfair result.
The taxpayer worked as a self-employed milkman for seven months in 2003-04. He registered for self assessment and submitted a tax return, albeit late. His first error was to get the decimal point wrong – recording sales of £5,678,123. HMRC corrected the error and assessed him on profits of £54,502, which took account of the expenses he declared. That is a spectacular level of income for seven months’ work as a milkman and he failed to claim important expenses – not least the cost of the goods he sold and the running expenses of his milk float.
Unfortunately, the taxpayer allowed things to drift on. There was sporadic contact, but nothing was finalised and HMRC started enforcement proceedings. Eventually the case found its way to the tribunal. The judge, although sympathetic, decided that nothing could be done. The taxpayer was taxed on the basis of his own self assessment and was far too late to appeal against the penalties.
The result was correct in law and neither HMRC not the tribunal can be criticised for applying the legislation. But it leaves a bad taste in the mouth. The taxpayer did himself no favours by burying his head in the sand (behaviour which many of us will have seen from other clients) but now has to pay tax and National Insurance of more than £16,000, penalties of nearly £2,000, and 13 years of interest on profits that everybody accepts he did not earn.
I am not sure what is the right answer to situations such as this, but I am convinced that no one would consider the outcome in this case satisfactory. A compassionate override to the strict letter of the law is clearly needed.
If you do one thing…
Read the latest version of HMRC’s agent authorisation guidance.
Andrew Hubbard
Why am I not surprised at this? I have a case not as bad but in a similar vein. I was so upset about the sheer brutality of the penalty system - which should never have been accepted by the ICAEW Tax Faculty - that I wrote to John Mann MP about this. My particular point is that HMRC constantly refers to the Tax Gap, but what about the reverse: the unjust penalties and over-estimated income figures that they use against unrepresented taxpayers and others?
We only need to read the tax case reports each week to see the extent of poor HMRC behaviour. It should not have been necessary to create charities to assist unrepresented taxpayers.
Robin Summers.