HMRC Aren’t Always Right

According to the Government’s GOV.UK website, if you are a company director, you have to file a tax return every year. It says that every UK company director must send in a personal self-assessment tax return annually, and that this must be done even without prompting from HM Revenue and Customs (HMRC).

HMRC took that as authority to levy £1,300 in penalties on a company director who failed to file his tax return for the year 2014-2015 until it was several months overdue. He was not a native English speaker and had received no tax return to fill in nor, until a late stage, any correspondence or reminders from HMRC that filing a return was necessary – for the simple reason that HMRC do not send them.

The man appealed against the penalties and the case came before the First-tier Tribunal (FTT). HMRC ran into a significant problem when the FTT ruled that their claim that ‘as a company director one of the appellant’s responsibilities is to register for self-assessment and send a personal self-assessment tax return each year without prompt or reminder from HMRC’ was wrong as it was not backed up by any legislative requirement to do so.

HMRC had eventually sent a notice that a tax return was expected. However, the taxpayer had moved during the relevant period and claimed that he had not received it.

The FTT accordingly cancelled the penalties.

The case is particularly interesting for two reasons. Firstly, HMRC went all the way to the FTT on the basis that guidance on a government website had legal effect, which was clearly not the case in this instance. Secondly, the man asked at the hearing if he could give evidence himself via a translator. The strict procedure in such cases is that HMRC must be informed in advance so that they can bring an independent translator of their own. Notification was not given and HMRC refused to accede to his request, which seems unduly harsh.

The impression one gets is that HMRC are willing to use every trick in the book to collect what seems to be a minor penalty. One might surmise that the motivation for pursuing this case was that if they had won, they could have used the ruling to justify taking similar actions in the future.

A word of caution…the FTT ruling states explicitly that ‘if a person receives a notice to file a return he is under an obligation to file a return by the due date’. However, just because HMRC take a view on your tax matters does not mean they are right, nor does it mean that they will not seek advantage in the interpretation of the rules.