In April, Telegraph Money wrote about the disturbing case of Benjamin Erridge who was forced by HM Revenue & Customs (HMRC) under the threat of debt collectors, and against their own guidelines, to sell his home to pay a dramatically inflated tax bill.
I represented Mr Erridge at the hearing and beforehand. I will not repeat what has already been written, but I want readers to know that the way he was treated by HMRC was not an exception but indicative of the way the tax office behaves towards their small “customers” with limited financial expertise and resources.
Twenty years or more ago, it would have been possible to negotiate your way through a tricky situation to arrive at a resolution that was fair while having regard for the law.
Some improvements have been made in assessing taxpayer behaviour with regard to penalties, but some rights and the ease of appeal when HMRC gets it wrong have either been removed or are simply ignored.
The tax office has extensive powers that are more likely to be used on the innocent taxpayer that has made a mistake or not realised they should have done something when required. This is even more exasperating when the mistake arises from HMRC error and disorganisation. The responsibility and burden of proof is then passed to the taxpayer.
An obvious example is the “high income child benefit charge”.
The system for paying the correct amount of child benefit (which tapers the more you earn) could and should have been much simpler. Instead, it creates a problem for the taxpayer and HMRC then expects the taxpayer to sort out the ensuing muddle.
This required the taxpayer to have knowledge of their tax affairs and inform HMRC that they had a tax liability.
In the vast majority of cases. the taxpayer is employed and dealt with under PAYE. They typically have never had to complete a tax return. They wouldn’t have tax advisers and have a very limited understanding of their tax affairs since it had always been dealt with before they receive their net payment into their bank account.
HMRC operates the child benefit agency so we have the bizarre situation where HMRC has the information about your employed earnings and the amount of child benefit you are due but it does not raise an assessment at the time, preferring to issue psychological nudge letters and a supposedly a national campaign
Unless you had an accountant, you would not have known about it.
So the inevitable happens. Fast forward, say, eight years and you receive a nudge letter informing you that you might need to declare and pay back taxes and provide information to HMRC that the tax man already has.
You may even need to request this information from HMRC in order to provide it back or you will be seen as being unhelpful, particularly if you have changed jobs and no longer have access to your online payslips.
HMRC then informs you that it cannot take action against you at the moment because it is waiting for the law to change following a loss in the upper tribunal tax courts (HMRC v Jason Wilks [2021]). That law change turns out to be retroactive.
In the meantime, if you have an accountant, they will have been unable to charge anything like a realistic amount for the work required.
HMRC is unable or unwilling to apply the law or doesn’t believe in it or their own guidance or initiate any of the various protections the law and guidance provides. Instead, it informs you of their rights and refuses to enter into a repayment plan because you don’t earn enough money.
In the meantime, it apologises for you not receiving the assessments it thought it had posted. 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.
Luckily, you can appeal to the independent tax tribunal courts. You might not win, and the professional costs will be enormous.
You can appeal yourself as there are no court charges but you are not a tax expert.
HMRC is fully aware 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.
So, these were the choices facing the taxpayer:
Pay HMRC by selling the house and leaving your wife and the children without their home.
Fight it and land 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 because the fees are likely to exceed the savings particularly if the amounts disputed are relatively small.
Thank goodness we still have the right of appeal to the independent tax tribunal.
Most of these cases never get to the tribunal because of the costs and risk involved. However, they would never have needed to go to a tribunal if HMRC followed the legislation and its own guidance and was more reasonable.
Unfortunately, we are seeing a behavioural shift in the way taxpayers are dealt with and it is not in a fair direction.
Perhaps we should be able to assess HMRC’s own behaviour as to whether it made a mistake as careless error, deliberate, or deliberate with concealment, as it does to taxpayers. If you are going to expect behaviour 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 tragic but by no means isolated. I would like to thank the tribunal judge for seeing justice restored.
Keith Alden is a chartered accountant at Mason & Co
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