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TaxationWeb's Mark McLaughlin points out that tax legislation can produce some unintended - and grossly unfair - results.

The statement in the title of this editorial probably won't come as a great shock (in fact, some would say it was axiomatic!), particularly after all the controversy in recent months about celebrities and multinational companies paying less than their 'fair share' of tax.

But fairness in tax works both ways.

I was saddened to read a recent tax case (Roger Downward v Revenue & Customs [2013] UKFTT 517 (TC)) about an unfortunate taxpayer who incurred an unnecessary tax liability simply by ticking the wrong box on a form. The taxpayer had taken out an investment bond, divided into a number of separate life insurance policies. When withdrawing some of his investment, he was given a form to fill in. The form asked him to choose how the repayment should be made. The box he ticked in error was to partially surrender each of the life policies (he later withdrew further funds, but without stating how it should be made, and it was treated by default in the same way as the first withdrawal).

HMRC demanded the tax. The taxpayer argued that ticking the box to make the first withdrawal was a simple error on his part, and that the second error was clearly done in the wrong way. However, the tax tribunal held that it had no power to to amend the taxpayer's mistake. The tax demanded by HMRC was legally due. The taxpayer's case was dismissed.

It is not the first time this has happened (see Joost Lobler v Revenue & Customs [2013] UKFTT 141 (TC)). The tribunal Judge in the above case echoed the comments of the Judge in the earlier case as to the "repugnance" of the result.

Both Judges were right. It is repugnant that someone can lose their life savings in tax, or even be bankrupted, as a consequence of ticking the wrong box on a form.

HMRC will no doubt point out that their hands are tied by the law, and that they have no discretion such as in the dreadful cases mentioned. That may be true. But it doesn't make it right or fair.

If the law needs changing to protect taxpayers from the tax consequences of their innocent mistakes, then so be it - and the sooner the better.

Best wishes

Mark McLaughlin 

Managing Editor