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The UK Tax System: An Introduction by Malcolm James

Malcolm James, author of ‘The UK Tax System: An Introduction’ explains how to obtain advice from HMRC, and considers errors and delays by HMRC.

Obtaining Advice from HM Revenue & Customs

HM Revenue & Customs are prepared to offer guidance on their interpretation of the law, Statements of Practice and other published information where they are able to do so, and in cases where there is a public interest in an industry or financial sector and the operation of the law is uncertain. They will not advise a taxpayer on the conduct of his own affairs. Where advice is sought a taxpayer must:

• ‘put all his cards face upwards on the table’;

• indicate the guidance sought;

• make it plain that it is fully considered guidance which is being sought;

• indicate the use which it is intended to make of the guidance, and in particular whether he plans to tell others of it.

(MFK Underwriting Agencies Ltd ex parte (1989) (BTC 56))

Advice should not be relied upon above and beyond any qualifications contained in it, and the precise application of the advice will depend on the exact details of a transaction. Where advice is sought on a specific transaction the taxpayer must disclose his tax district and reference. An interpretation may be given on a nonbinding basis to a representative body (e.g. ICAEW). In the case of R v IRC ex parte Matrix Securities Lltd (1994)(BTC 85), it was held that in obtaining HMRC clearances, it is the duty of counsel and solicitors to use the care and skill which would normally be expected of experts in their field, rather than to obtain a specific result. They cannot be held to be negligent if there is a failure to obtain the clearance sought. Three points emerged from the above case. First, the company had failed to make full disclosure. It was not enough to disclose sufficient information so that appropriate inferences could be drawn. Secondly, where a taxpayer should be aware of the level of clearance which may be given at a particular level of the HM Revenue & Customs hierarchy, but nevertheless obtains a clearance in a different way, HMRC need not be bound by it. Thirdly, the taxpayer should give HMRC a reasonable time to respond having regard to the complexity of the case.

HM Revenue & Customs will not give pre‐transaction rulings, with the exception of ‘product rulings’ for retail financial products, however it will give post-transaction rulings to give a taxpayer certainty prior to submitting a tax return.

Where such a ruling is given the return will automatically be reviewed to ensure that the ruling has been followed.

For further advice on HM Revenue & Customs’ policy on giving clearances and rulings see the booklet Code of Practice 10, Provision of Information and Advice to Taxpayers and Businesses.

Errors by HM Revenue & Customs

HM Revenue & Customs will reimburse the taxpayer’s costs where these have arisen as a result of ‘serious’ or ‘repeated’ errors by HMRC (Code of Practice 1, Mistakes by the Inland Revenue). These may include professional fees, personal expenses or lost wages or fees. HMRC guidance indicates that a serious error includes one where:

• HM Revenue & Customs take a wholly unreasonable view of the law. This is to be distinguished from a difference of opinion;

• HM Revenue & Customs start or pursue an enquiry into matters which were obviously trivial on the facts available at the time;

• HM Revenue & Customs make an innocent or trivial mistake, but they should have known that the consequences might have been more serious.

• HM Revenue & Customs make a breach of confidentiality in the handling of a taxpayer’s tax or national insurance affairs.

A repeated error includes the situation where:

• HM Revenue & Customs continued to make the same mistake after it was drawn to their attention, unless there is a genuine difference of opinion;

• They repeatedly made the same type of error, even though the facts remained the same;

• they made a number of unconnected errors in respect of the same tax year or the same assessment.

In certain circumstances HMRC will pay compensation if the taxpayer has incurred additional costs as a result of an error.

HM Revenue & Customs will not reimburse costs arising from an enquiry into a return, even if no errors are found, unless the taxpayer can show that the enquiry was seriously mishandled and/or unnecessarily prolonged. The taxpayer should, however, use his right of appeal to prevent such a situation arising.

HM Revenue & Customs have published a Redress Handbook (RDH 1.10) giving procedures and advice regarding compensation where there is a serious delay by HM Revenue & Customs. Where a serious delay or error occurs, HMRC will usually agree to waive interest and penalties and pay compensation.

Arrears of Tax Due to HMRC Delay

ESC A19 states that arrears of tax may be waived where these are wholly or partly due to the failure of HM Revenue & Customs to make proper and timely use of information supplied to them by the taxpayer so that, in the view of HMRC, the taxpayer may reasonably believe that his affairs are in order. Tax will normally be waived where:

• the taxpayer could reasonably believe that his affairs were in order;

• the taxpayer was notified of arrears more than 12 months after the end of the tax year in which HM Revenue & Customs received the information indicating that more tax was due; or

• the taxpayer was notified of an over‐repayment after the end of the tax year following the tax year in which the repayment was made.

Arrears of tax notified 12 months or less after the end of the relevant year may be waived if HM Revenue & Customs:

• failed more than once to make proper use of the facts they had been given about one source of income;

• allowed arrears to build up over two whole tax years in succession by failing to make proper and timely use of information they had been given.

Malcolm James
October 2005

The above article is adapted from ‘The UK Tax System: An Introduction’ published by Spiramus Press Ltd. To order The UK Tax System: An Introduction
click here

About the author

Malcolm James is a Senior Lecturer in Accounting and Taxation at the University of Wales Institute, Cardiff and has lectured widely on the subject of taxation on both professional and undergraduate courses. He has also lectured for the Chartered Institute of Taxation and written a number of articles for their journal Tax Adviser. He also contributes regularly to CCH and Lexis Nexis tax publications. Before becoming a lecturer he worked for several large firms of accountants and also in industry.