September 26, 2011ICAS criticises 'cynical' penalty culture

Two recent tribunal decisions backing taxpayer complaints against unfair penalties highlight double standards in the tax system and the need for an independent complaints procedure for tax
disputes, according to ICAS tax director Derek Allen.

In his 19 September tax update on the Scottish institute's website, Allen drew attention to two recent tribunal cases as evidence of HMRC's "asymmetry of standards", where it makes "many mistakes but suffers no sanction yet expects perfection from taxpayers."

Allen, a former Inland Revenue inspector, said HMRC's organisational culture is "cynical" and called for an independent review of tax disputes.

The complaint echoes critical comments about penalty notices issued by HMRC and disagreement over reasonable excuses for late returns that have been raised by AccountingWEB members (and tribunal judges) in recent months.

In the DWS Environmental Ltd v Revenue & Customs (TC01325), published in July, the tribunal judge overturned surcharge penalties for late payment of VAT by a water cooler supplier.

DWS's director and shareholder, Mrs Newell was ill, suffering from stress. The company had changed its name from Direct Water Solutions Ltd to DWS Environmental Ltd on 7 November 2008. On 5 August 2009 the appellant moved premises and informed HMRC of their change of address.

When DWS was late with its VAT payment HMRC did not activate the change of name or the change of address and sent the surcharge notices addressed to Direct Water Solutions Ltd and to the Appellant's old address. The company was unaware of the problem until the bailiffs arrived as a result of the non payment of the surcharges.

HMRC denied having received the notification of change of name and change of address but there was other evidence that showed the taxpayer had made repeated attempts to notify and update HMRC's records.

The tribunal ruling noted that section 98 of the 1994 VAT Act states that any notice of demand served on a person should be posted to the "last or usual residence or place of business of that person or representative."

Writtle College Services Ltd v Revenue & Customs (TCO1325), also published in July, involved an appeal against a penalty for the late filing of P35 returns. On 8 April 2010 Writtle College Services sent its P35 return to HMRC but didn't realise that in order to make a successful submission it was necessary to untick the test submission box.

When HMRC acknowledged receipt Writtle assumed its P35 had been filed. HMRC issued a £400 penalty to Writtle in a letter dated 27 September 2010.

The tribunal found the company had a reasonable excuse and the penalties were not due.

An excuse is likely to be reasonable "where the taxpayer acts in the same way someone who seriously intends to honour their tax liabilities and obligations would act," the tribunal's presiding member Anne Redston wrote.

HMRC did not respond to a request for comment on the tribunals and Allen's comments

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