UK tax authority accused of ‘pattern of costly mistakes’ after latest bungle

HM Revenue & Customs has come under fire over its enforcement capabilities after a case it was pursuing collapsed because it failed to serve required documents on time, the latest legal setback for the UK tax authority.

A judge last week dismissed a tax avoidance case that HMRC had brought after its lawyers missed a deadline for submitting the paperwork by two hours. HMRC is seeking to have the case reinstated.

Another case that HMRC was pursuing — in which it was seeking to impose a £14mn penalty against an individual for failing to provide tax-related information — was struck out last year, also as a result of problems with its procedures, according to a judgment published in June.

Several tax lawyers and accountants said both episodes were a sign of deeper problems with enforcement at the authority. Those whom the authority wanted to pursue are able to “run rings” around it, said Dan Neidle, former Clifford Chance lawyer and founder of think-tank Tax Policy Associates.

“There is a consensus across the profession that HMRC’s litigation strategy is broken,” he added.

Ray McCann, a former senior tax investigator at HMRC and now consultant with Charter Tax, said: “Every organisation gets it wrong from time to time. But HMRC has shown over the last several years a pattern of making costly mistakes.”

In the case that the First-Tier Tribunal Tax Chamber struck out last week, HMRC had wanted the judge to find that a particular type of financial arrangement — an “enhanced umbrella scheme” — constituted a tax avoidance scheme whose details need to be disclosed to the authority.

HMRC’s lawyers had told the tribunal that it would be “completely disproportionate” for it to strike out the case “simply because it had missed a deadline by two hours”.

However, tribunal judge Nigel Popplewell said the case needed to be struck out as a result of the late submission, “as night follows day”.

HMRC said in a statement: “We take directions from the tribunal seriously and always make every effort to comply with directions in full. There is a procedure to reinstate the case.”

Popplewell, in his judgment, highlighted that if HMRC wished to reinstate the case it would need to comply with another deadline — to apply within 28 days of the ruling.

Neidle said it was “just astonishing” that the legal documents had been provided late. “Deadlines are the most basic thing. If you’re getting that wrong, you’re going to be getting a lot of other thing wrong,” he said. “HMRC has completely lost control.”

In the other case, HMRC wanted the Upper Tribunal to impose a £14mn penalty against an individual for failing to disclose information that the authority had asked for.

The reasons the tribunal struck it out were more complex than in the umbrella scheme case, but related to the amount of time HMRC gave the individual to respond.

HMRC said: “We have safeguards in place to ensure future penalties are issued within the time limits.”

The criticism of HMRC’s enforcement comes as its customer service also draws scrutiny. A damning report by the National Audit Office spending watchdog in May concluded it was failing the public.

“HMRC simply does not have enough resources to do its job,” said tax lecturer and accountant Rebecca Benneyworth. That “manifests not only in long waits for the telephone to be answered and letters to be replied to, but more fundamentally in errors of process like these — whether due to lack of staff or inadequate training”, she added.