Tribunal Rejects Unreasonable HMRC Argument
HM Revenue and Customs (HMRC) are renowned for taking an overly tough stance when it suits them, as illustrated by a recent case in which 'special relief' against tax bills was refused to a taxpayer.
'Special relief' can be given where it is 'unconscionable' not to give relief to the taxpayer after his or her tax affairs have been brought up to date, or arrangements have been made to do so, and where there has been no prior claim for special relief by the taxpayer.
So, when a claim for special relief is made, the granting or not normally turns on HMRC's definition of 'unconscionable'.
The approach HMRC take is evidenced by the fact that they did not regard the following circumstances as justifying a claim for special relief against tax assessments totalling more than £17,000 for a taxpayer who had failed to file tax returns for six years. During the first year or two he had been self-employed, but that ceased and he only recommenced self-employment some years later – well after the final period for which tax assessments were raised.
The taxpayer was severely dyslexic and had severe learning difficulties, which was confirmed in a statement from a chartered educational psychologist. In an interview with a tax inspector, he took more than ten minutes to make four lines of notes, which were spelled out to him by the inspector.
He did not understand the nature of the correspondence he received from HMRC and when he replied, with the assistance of his daughter, his letter was returned because it had been addressed to the wrong HMRC department.
During the period in point, he had suffered a fire at his house. He had also separated from his wife and was left to look after their daughter on his own.
Eventually, with the help of his family and an accountant, he was able to bring his tax affairs up to date. A claim for special relief was made, and rejected by HMRC.
The case went to the Tribunal, which had to rule on whether HMRC's view that it was not unconscionable to deny relief was itself unreasonable. The fact that the Tribunal might take a different view was not in point…the question was whether it was unreasonable for HMRC to take the view they did based on all the evidence.
Using an everyday definition of 'unconscionable', the Tribunal ruled that the taxpayer's claim should be allowed.
What may be discouraging for a taxpayer in similar circumstances is that HMRC's hard-nosed stance meant this had to be argued before the Tribunal.
Clearly, the best advice is to make sure your tax affairs are kept up to date.