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Tolley's Practical Tax by Sarah Deeks

Sarah Deeks looks at an important source of information for tax professionals.Tax practitioners regularly have to refer to HMRC’s on-line manuals but find using them to be a frustrating experience. This is principally because HMRC does not adequately publicise the updates, and with no audit trail to track the changes within the manuals, advisers have found to their cost that they have used out-of-date material. This article considers how practitioners can get the best from this valuable resource.

Revenue manuals

The Revenue’s internal manuals were first made freely available on-line to practitioners and the public in 2000 to meet HMRC’s obligations under the Freedom of Information Act 2000. Since then they have been updated, new ones added and out of date manuals replaced.

The current manuals are listed alphabetically on www.hmrc.gov.uk/manuals/. Users can either refer to the pages on-line, or transfer them in a downloadable zip format to a computer hard disc. The manuals are also available bundled into on-line subscription and CD-Rom services provided by the major tax publishers. The main drawback of accessing the manuals in this way is that they may not be as up-to-date as those on HMRC’s website depending on how frequently the service is updated.

HMRC’s manuals are published under the Code of Practice on Access to Government Information which entitles HMRC to withhold certain data, usually because to release it would be prejudicial to law enforcement. Accordingly, users of the manuals will find that certain paragraphs (sometimes large sections of text) are unavailable.

Health warning

Before looking at their use, it is worthwhile noting the manuals’ limitations. HMRC does not claim that they provide a comprehensive resume of the tax legislation or that they are designed to provide their staff with definitive answers. Officers still need to exercise judgement based on the facts of the case. Furthermore where tax avoidance is in point the guidance in the manuals will not necessarily apply. In essence therefore, whilst the manuals contain HMRC’s interpretation of the tax legislation and its internal procedures and policies regarding tax administration, they do not constitute the law.

The legal status of the manuals was highlighted recently by the Special Commissioner in Impact Foiling Ltd and others v Revenue and Customs Commissioners SpC 562, 3 October 2006. The case concerned the application of the benefit in kind charge for the provision of private fuel for a company car (ITEPA 2003 s 151). Part of the appellant’s case was based on HMRC’s policy in Employment Manual EIM 23782 which states that payments for private fuel are to be treated as paid within a tax year if they are made without reasonable delay after the end of the year or within 30 days of discovering an unintentional error. In giving his decision, Dr John Avery Jones noted he could not take into account the concessionary treatment in EIM 23782 because the manual has no legal effect.

Advisers’ reliance on the manuals is also limited by their lack of impartiality. For example Employment Status Manual ESM 7000 contains a list of all the cases HMRC considers relevant to its employment status work, including some unreported decisions. The list is however not comprehensive and some cases giving judgements favourable to the taxpayer are omitted, see ‘Selective and Superficial’ by John T Newth TPT 22.15, 118, 18 July 2001.

Using the manuals

As is the case with all new reference books, before using a manual for the first time it is worth reading the introduction page so that you understand the scope and history of the work. HMRC tries to keep the manuals current but some are technically out of date. For example the Business Income Manual still refers to ‘Schedule D’ and has not yet been rewritten to take account of the changes introduced by Income Tax (Trading and other Income) Act (ITTOIA) 2005. That being said, other manuals have been updated for ITTOIA, and in spite of the lack of updating HMRC’s opinions on the legislation remain valid.

Whilst not wishing to rank the manuals in order of importance, some will inevitably be referred to by the average practitioner more than others. Readers should familiarise themselves with the layout of the manuals they are likely to use most often so that when an issue arises they understand how HMRC’s internal guidance can help them. For example, if I was an adviser interested in employment status issues I would find it helpful to know that Employment Status Manual ESM 4000 lists the employment status of various occupations from barristers’ clerks to doctors and election agents to school inspectors.

The illustrative examples are one of the manuals’ more useful features presenting as they do the practical application of the law and HMRC’s interpretation of it. I was recently researching which expenditure qualifies for capital allowances when unused space above a shop is converted into residential accommodation (CAA 2001 Part 3A). Capital Allowances Manual CA 43150 came up trumps informing me that HMRC treats ‘expenditure on repairs as qualifying expenditure if it can not be deducted in calculating business profits.’ The paragraph also confirmed that if I extended the building to incorporate a stairwell providing access to the flats above this would also be eligible expenditure, as would my architects and surveyors’ fees. These details were then helpfully reiterated and summarised in the on-going example of ‘Rick’ an owner of a cafébar who converts the two floors above his bar into flats for letting.

Keeping up to date

In spite of gripes to the contrary the manuals page of HMRC’s website provides a variety of tools to ensure that researchers have access to the latest version of their guidance. At the simplest level, the alphabetical list of manuals referred to in ‘Revenue Manuals’ indicates which manuals have recently been deleted. Helpfully, in the case of the withdrawn Enforcement Manual, users are redirected to guidance in the Recovery Manual but the information is not always so obliging. The Personal Contact Manual, withdrawn in August 2006, dealt with, amongst other matters, HMRC’s procedures for handling angry taxpayers and agents. Unfortunately in this case the website does not tell us where the deleted instructions are now located, leaving users to speculate on the possibility that taxpayer and agent rage is a thing of the past! The more likely conclusion is of course that the instructions will reappear at a later date in a new manual but no indication of what this will be called is given or the timetable for publication.

The manuals website includes two links to enable users to check for content updates. The first of these ‘Published’ takes you to ‘Manuals – Publication or update information’ on www.hmrc.gov.uk/manuals/pub_dates.htm. The page lists the title of the manual, the date it was first published electronically and the date that the volume was last updated. This information enables researchers to see at a glance whether they need to check for new material via the second link. The reliability of this page is however not guaranteed as when I checked the site at the beginning of November 2006 the eponymous Personal Contact Manual was still listed as extant although the link itself had been cancelled.

Once you know a manual has been updated, a second link ‘Updated’ takes users to Guidance Manuals – Amendments’ on www.hmrc.gov.uk/manuals/amendments/index.htm. Here HMRC provides a monthly list of all the amendments made to each manual. Assuming that the link works, which incidentally it did not in the case of the November changes to the Capital Allowances manual, you can then drill-down to a summary of the changes complete with a brief description of the amendment so that its importance can be appraised. For example, users can quickly see that Business Income Manual BIM 33710 was updated by the insertion of a third paragraph on 23 October 2006 to reflect the impact of Triage Services Ltd v Revenue and Customs Commissioners [2006] STC (SCD) 85 on the interpretation of revenue or capital payments on the acquisition of a business. From the summary, a further link takes you directly to the page of the manual concerned.

An alternative means of checking for updates should not be overlooked. Most manuals include an internal update index (essentially an archive of the previous updates in date order) which may be a more convenient way for regular users of a specific manual to check for amendments.

Searching

You can also check for updated material via a search facility. Users can search for updates within the past 7 or 30 days, or specified range of dates. It is also possible to search for updates by subject. I searched for ‘trusts vulnerable beneficiary’ and obtained 23 hits which I then had the option to sort by relevance or date order. Unfortunately, the links from the search facility only direct you to the update index for the specific manual not to the relevant page in the manual itself.

This means that where there have been several changes it takes time and effort to spot the information you are looking for before finally referring to the relevant page in the manual. It is also worth emphasising that this search facility only locates updates to the manuals and is not a general search facility.

If you want to undertake a subject rather than an update search there are two ways of to do this:

• Using the search facility within an individual manual (most manuals have this facility). This is a good option for questions specific to a particular manual.

• Searching from the website, limiting the search specifically to the internal manuals. This is useful for more general research across several manuals.

Continued updates

In addition to monthly lists of updates and the search facilities HMRC have helpfully included an RSS feed on the manuals page of the website. RSS stands for ‘Really Simple Syndication’ which is used to provide continual information directly to your computer rather than you having to search for it. Provided that you have installed a feed reader on your computer system, the RSS facility automatically notifies you of any changes to the manuals. There are numerous feed readers available free of charge on the Internet - just Google ‘feed reader.’ Once installed you can obtain the update notification by dragging the RSS feed icon into your reader.

Practice management

Two practice management issues should be considered by advisers in relation to HMRC’s manuals:

• With the manuals so easily accessible there is no excuse for not referring to them when advising clients. It is likely that failing to consider their impact could amount to negligence.

• Firms should check the appropriate text in full each time they provide advice in case the guidance has changed. It is also advisable to keep a contemporary hard copy of the relevant page of the manual being relied on to demonstrate how a particular conclusion was reached.

If you fail to do so there is a risk that as the manuals are being continually updated, in the event of litigation there may be no audit trail to justify your opinion.

Further improvements

HMRC now have reasonable procedures for tracking changes to the manuals but further action is still needed to make them more user-friendly and transparent. Two helpful improvements would be to:

• Notify users of content changes and the issuing and removal of manuals in the ‘What’s New’ section of the Practitioner Zone of HMRC’s website - the first port of call for many advisers.

• Retain an archive of ‘old’ material particularly where manuals are in the process of being updated.

The change which would be of most significant benefit however would be to include footnotes to each paragraph showing the history and derivation of the material. In this respect HMRC has much to learn from Tolley’s Yellow and Orange Handbooks.

Sarah Deeks LLB FCA
November 2006


This article was first published in Tolley’s Practical Tax, and is reproduced with the kind permission of Lexis Nexis UK.