What can be done when HM Revenue & Customs are pursuing a tax debt which is not due, and are being aggressive in their approach?

Mark McLaughlin CTA (Fellow) ATT TEP, General Editor of TaxationWeb, selects a 'question of the month' from TaxationWeb's Tax Tips Forum.

Introduction

For all their efforts at improving 'customer' service, it appears that HM Revenue and Customs (HMRC) seem completely oblivious to the fear and anxiety that they can cause some taxpayers. Based on my 20 years of experience as a tax adviser, I think it is no exaggeration to say that a letter, visit or telephone call from HMRC is capable of causing taxpayers a great deal of stress, with HMRC often being viewed in a similar way to the police force.

There is a feeling amongst some tax advisers and accountants who deal with HMRC on a regular basis that HMRC are more aggressive in the way they conduct themselves than before. Whether this is the result of the Government's drive to increase tax yield is open to debate. However, what is clear is that their approach needs to be measured, consistent and relative to the taxpayer and the situation they are dealing with. Some HMRC officers are more aggressive and confrontational than others. This is human nature. However, there has to be a means of effectively controlling over-zealous officials of all kinds, and there needs to be visible accountability in cases of improper conduct.

The following query from 'JaneR' speaks for itself as a case in point. Of course, it could be argued that there are two sides to every story, and that we cannot vouch for the events described. It is also probably true to say that some taxpayers have a grudge or an 'axe to grind' with HMRC. However, there is no reason to believe that any of those arguments apply in this particular case. 

Query from TaxationWeb visitor ('JaneR')

I have endured 18 months of hell with my local tax office. I am not wealthy and my most recent job earned me £15k on PAYE. I have dealt with all enquiries and have even paid for an accountant to complete the returns requested. However, this morning the IRS have issued a 'distraint order' for £44k although my returns have been sent in on numerous occassions and they actually owe me money.

My accountant phoned my local tax office this morning to sort it out and the woman he spoke to said that this sum had been reduced to 28k and she admitted that this number was 'plucked out of thin air'. This situation has been going on for 18 months and is ruining my life as I am not a high earner and do not owe them money (I am out of work at the moment and sold my house last year because I couldn't afford to pay the mortgage). It started with a letter relating to my 'not paying enough income tax' when I was working as a temp (whilst studying part time for a post-grad).

This telephone call left me stunned as it escalated into an enquiry into a flat I rented which was my PPR, a number of years previously and the IR guy being aggressive and sarcastic saying that I owed CGT (I have checked and I don't as it was my PPR and I owned it for 3 years and lived there alot of the time). For a start, the man at the tax office didn't even know the CGT rules. The way he spoke to me was like being interrogated and left me feeling shocked as he was so rude and aggressive.

When I rented my flat out it hardly covered the mortgage payments and naively I hadn't put returns in for rental income at the time - I was naive in those days and I was on PAYE at the time so any money I earned was taxed by my employer.

Tax returns for the past few years were requested last Feb 06 and they have been sent (hard copy) by my accountant repeatedly, dating back to last year, but the department dealing with it keep saying they haven't received them and the threatening letters continue.

Best of all for 05/06 I am owed money, for 04/05 I have already had a tax refund (for a few hundred pounds) and 03/04 I was on PAYE. And now they are threatening me with bailiffs saying that I owe £44k?!?

I know I don't owe anything, but I feel harrassed and it has made me quite depressed for the first time in my life. I can't sleep and am thinking of going to my GP for antidepressants. I have ok credit and am worried it will affect it as well as affect future job opportunities.

It is (hopefully) in the process of getting sorted out today although there is still the threat of bailiffs calling next week. Is this level of harassment legal? Has anyone else experienced this level of bullying? In my opinion it is a total waste of tax payers money to chase innocent people like this.

What can I do? I would be grateful for any comments as I am at my wits end.  

Editor’s Comments

In this case, 'JaneR' has admitted having been non-compliant in failing to declare her rental income. However, one of the disturbing aspects of this case is the alleged admission of an HMRC officer that the quantum of tax liability being pursued had no apparent basis or foundation. In addition, there can be no excuse for the alleged rude and aggressive attitude of HMRC officials.

Taxpayers need to be aware of their rights in those types of situations. HMRC have published a Code of Practice (COP) 'Putting things right: how to complain' (COP1), to make taxpayers and others aware of the various channels available to complain in situations such in the case of 'JaneR'. Those channels are both internal (e.g. HMRC Customer relations or complaints) or external (e.g. the adjudicator or Parliamentary Ombudsman). To access this information, click here.

This forum posting attracted significant attention.

Forum responses included:

Taxesclear.co.uk said:

 Have you moved house or changed your address very much in the last two years, or have you been ignoring correpoondence from the Collector of Taxes and the taxman.

For the situation to get to this stage either correspondence has gone missing or not dealt with.

Peter D said:

Your accountant will have kept a copy of your returns. He needs a one to one meeting with the tax office to bottom this problem out. However the trigger appears to be the Flat. Now calm down.

Tell me when you purchased the flat, at least month and year, how much for, when did you move in and when did you move out, when did tenants rent it, start and end dates and when did you sell it and for how much. Was this your only property at the time or did you move out, rent is and buy another home which you have now sold.

JaneR said:

Hi Dennis, thanks for your reply. all correspondence has been dealt with as I refer it to my accountant and sometimes go to his office to discuss the situation. They just wanted returns, which have been sent by the accountant on a number of occassions. Its very frustrating as they keep saying they haven't received them and I know he has sent hard copies.

Hi Peter, Thanks for your reply too. The flat was purchased in June 2000, sold in Dec 2003. I lived in it for the first 18 months, then tenants moved in for 6 months, then I moved back for 4 months, then tenants moved in for 2 months ( they broke the lease) then I moved in again. I sold it for £105k. It was absolutely my only property at the time (first time purchase). I bought a house 7 months after selling the flat which was also my PPR. My accountant is speaking to the Customer Manager at the IRS to get it sorted out today ( hopefully). It seems they have estimated tax they think I owe, but when we send the returns, they don't acknowledge them. On the determination notices that I took to my accountant yesterday there was no mention of CGT just income tax they say I owe. Is it common for correspondence to go missing? Are tax offices known for being inefficient? I have never been in trouble in my life and this is scary and as I said, the returns show that I don't owe any money.

al_eebee said:

It is possible that the returns have disappeared into one of the sacks in HMRC warehouses awaiting processing.

Suggest your accountant gets a name for somebody handling the case and sends them direct for their attention.

Also if the catalogue of events is this bad and has required your accountant to get involved in much more time to work things out with HMRC - because post keeps going astray at HMRC - then make sure that you/he submits a claim for the additional fees incurred unnecessarily so that you are not out of pocket for their errors.

As to the determinations made they are made when HMRC do not get responses to returns issued (lets ingore for the moment that you have tried repeatedly to submit them) and should be amended to final figures once the returns are received and processed.

If you receive calls from the local recovery office just tell them what has happened re the returns being lost and that the returns prepared show only small liabilities, and indeed refunds for some years, and they should hold off whilst their colleagues sort themselves out.

And if all else fails threaten to report the matter to your local MP, and do so if it still is not resolved due to errors and losses. That normally has the desired effect.

JaneR said:

thank you.

Yes, the returns and other correspondence have got lost in the past even when they have been sent to the address on the brown envelopes they enclose.When my accountant has followed it up and the department we are dealing with has said they haven't received them, he asked for the correct address, (just in case he was getting it wrong) and it turns out that the department address is more detailed. It should include a 'section' and a department. Correspondence is just vanishing, goodness knows where it is ending up, these people can't even put a complete address on their letterheading or SAE's. They have telling him to send returns to Newcastle although the info is needed in the south. Sorry to go on but its so frustrating.

I will report it to my local MP if its not resolved this week, don't want to sound like a drama queen but I have felt almost suicidal (very unlike me). My sister said to go to a newspaper when its resolved ( might be a bit embarassing though).

My accountant is phoning the customer manager today to make sure the legal department has communicated the correct information to him.

Cynic said:

You have said you have received a rebate for 04/05 therefore HMRC must have at least have received this return.

Also, if you are now in employment earning £15k and have sold your only rental property 3 years ago, why are you issued with tax returns anyway?

Are you certain your accountants are doing what they say?

JaneR said:

Hello. I was on PAYE for 03/04 and then worked less in 04/05 hence the rebate, no returns were submitted at that time as I had no other income, I just paid through PAYE.

HMRC started questioning me about my flat I sold in 2003 saying I owed CGT ( which I don't, it was my PPR, owned for 3 years and I lived there half the time) but now they have stopped going on about that. On the determination notices it says I owe a fortune in income tax, £44k (in total on the notice I received this morning.) This is quite amazing as I earned £15k in one year and less than that in the following year as I was swotting for my law finals.

I sent returns for these years as last February they wrote to me asking for tax returns for 03/04 and 04/05 via their recovery office. I am wondering if someone has stolen my identity and been using my NI number or something, its all out of proportion as I am not wealthy or a big earner ( I wish I was!!)

The accountant that I use does my mums accounts for her rental properties, has done for years and he is reliable and really helpful. He is as exaperated as I am . I have been to his office and seen the returns. I feel totally bullied, have been trying to sort this out with them for 18 months but they are unhelpful and keep playing hard ball and now it has come to this.

Peter D said:

Well at least there is no CGT laibility regards the flat and I assume you submitted a tax return for the rental income from the letting. I would have deliver the papers to the departmental head and have a written receipt. Regards Peter

JaneR said:

Thanks Peter, Yes, no CGT and no income from the letting as I had a mortgage which it didn't even cover. We have been trying to reach the Customer Manager this afternoon but he is 'in a meeting'. Hopefully it will be sorted once and for all tomorrow.

Peter D said:

Only the intererst is chargeable against the rental income and aloss does not mean you do not have to report it as this loss is used the following year should you rent again.

adelante said:

I think that you are largely responsible for what has happened. You bought a flat which by your own admission you rented out and the payments did cover the mortgage so there would have been a small profit liable for income tax. You say you are naieve about these things and then go on to say your mother has an accountant and has a number of rental properties. I expect the tax man does not believe you did not know you should have declared the income. Did you mother not mention it to you when you started to rent it out?? Maybe they think you never really lived there. As you say you moved in and out a number of times so perhaps the tax man does not consider it to be your PPR. Where were you living when you moved out and the tenants moved back in?

You will just have to re submit the lost tax returns and hope the evidence is sufficient to justify your version of events.

JaneR said:

Thanks for your reply adelante, I rented it out 18 months after moving in and the rent DID NOT cover the mortgage, which was interest only. It was my PPR, I did not own another property and I lived with my mum when it was rented out as I was having money troubles ( ironically). I take on board what you say about not submitting returns, however, how am I responsible for the tax office not administering information that has been provided and a bill for £44k when I owe nothing, that is absolutely crazy. I hope it will resolved tomorrow and am going to contact my MP as this has caused such stress and an enquiry which was unnecessary in the first place.

Bob Jones said:

In your original posting you say "...although there is still the threat of bailiffs calling next week ...".

Normally the bailiffs will call only where the case has been to court as the court has to decide that distraint is the preferred option. Cases go to court where there has been no reply so either correspodence has been going to an incorrect address or, as cynic, says "Are you certain your accountants are doing what they say?"......

You ask if HMRC are inefficient - yes they are .. and they are turning into bullies - they are under instructions to get more out of less .. they are charging penalties where they have no right to ...it is getting worse and will continue to get worse as more of the Cutoms and Excise practices are adopted by the old Inland Revenue ....I feel very strongly about the way the department is going and I am glad I am no longer part of it ....

See how you go on .. let us know if it is resolved ....

JaneR said:

Update: Spoke to HMRC this morning, man dealing with matter is off sick. My returns are on his desk. (huge sigh of relief) Spoke to (a nice) woman who said my returns have been with them since November (!!!) and she will get them processed and the figures amended as a matter of urgency. I asked what had happened to the returns which were sent on time... which they don't give receipts for?

They can't put this converstaion in writing for some reason, but am happy (ish) as I just want it sorted.

Re: not getting receipts for previously sent hard copy returns. Apparently there is going to be a system change, they are going to start issuing receipts.

Bob was right in his previous comment, I had a notice that they are intending to serve legal proceedings, not that they have, I was in a panic and confused . But still, there is a big difference between £44k and them owing me a few hundred quid ( which they do). The frustration and feeling of harassment has been immense. Hoefully it is all over!

despearate den said: 

Here is the epilogue to what seems the most viewed post recently

The returns were in HMRC office since November, no excuse but

This was just before Christmas and January, with job cuts a low morale in HMRC, who wants to process out of date returns.

As an example we sent in 9 years tax returns for one client recently only six years in date were processed with no contract settlement pursued, only statements issued with interest and no surcharges.

HMRC went on strike on 31/01/2006 although they say they were not affected I think they were.

Collection and HMRC tax offices are becoming more fragmented and a culture of the computer saying “the tax is due” is all too common

This situation will become more widespread as HMRC adopt VAT tactics of pay up or shut up, as mentioned in previous post.

Jane I hope you apply for costs as you entitled to do so and please come to this forum again as I don’t think this is the last time we will hear of these appalling delays and stupidity from HMRC.

JaneR said:

Thanks for your comments and support. As I said this has affected my mental wellbeing (lol) but seriously, its good to know its not just me. Am glad it seems to be sorted out but my stomach still goes over when I think of the possibility that those threatening brown envelopes could keep arriving on the door mat.
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