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Peter Vaines of Squire Sanders reports on an interesting case involving an issue which HMRC cannot seem to stop getting wrong – and which hints at serious procedural problems in managing payments.

My heart sank when I saw the case of Kestrel Guards Limited v HMRC TC 3324 which is yet another case where HMRC imposed a penalty for late payment occasioned by postal delays. This is getting ridiculous. The position is quite clear as a series of cases before the Tribunal have shown but for some reason HMRC keep running the same (bad) arguments which have been rejected time and time again by the Court.

I make no apology for revisiting this subject because it is really important not only regarding the issue itself – but also on views of the Tribunal on the approach of HMRC.

If you send a cheque for the tax to HMRC the day before the due date by first class post and properly addressed, it is now well established that there is no penalty because you have a reasonable excuse if it does not arrive in time. (There was an aberration in the shape of Panther Parcels & Courier Limited but I would respectfully suggest that was per incuriam).

I entirely understand that if a payment does not reach HMRC on time, they are entitled to make full enquiries to see whether the taxpayer was at fault. If they have any doubts about what the taxpayer is saying, they may want to have his evidence tested on oath. However, they are supposed to have a reason to doubt that the taxpayer is telling the truth – I think the Taxpayer’s Charter requires HMRC to treat the taxpayer as honest unless they have reason to believe otherwise.

But that does not justify the continual rehashing of arguments which the Tribunals have said on a number of occasions are wrong. I would hope that the taxpayer has a good claim for costs because under the circumstances, HMRC can hardly be behaving reasonably if they keep advancing arguments which have been repeatedly held to be bad - even if decisions of the FTT are not binding. However, a claim for costs is unlikely to be very profitable because the penalties charged are usually very small and not worth the expenses of legal representation.

So was there anything special about Kestral Guards Limited? Not really - but there were a couple of interesting points. HMRC complained that the taxpayer did not provide proof of posting of the letters containing the cheques. The Tribunal said this was not relevant; they accepted the taxpayer's oral evidence and although a certificate of proof of posting would have corroborated his evidence, such corroboration was not needed.

There was a much more worrying passage. The taxpayer had telephoned HMRC regarding the matter    but their record of his call was materially wrong. The Tribunal expressed their concern that this error could have a seriously adverse effect on the taxpayer's position in the following terms:

"In keeping records and producing them to the Tribunal that untruthfully show the taxpayer as having refused to pay its tax liability, HMRC is acting unfairly and probably unlawfully."

I hope that there is somebody in HMRC who cares about this.

[This case is well worth a read: it is quite short yet full of acerbic comments at HMRC’s expense – almost funny, were it not for the fact that yet another taxpayer would have been ill served by HMRC in the absence of the Tribunal and, arguably much worse, it paints a woeful picture of HMRC’s systems for managing payments and debts – Ed]