According to Andrew Hubbard, tax consultant at RSM, two recent tribunal cases have highlighted problems with the phrasing of HM Revenue & Customs guidance and the problems which it can cause for taxpayers.
The first case concerned a company director who failed to submit a self- assessment tax return and was charged penalties of £1,300.
There were disputes about exactly what correspondence was sent by HMRC and to which address but the nub of the taxpayer’s argument was that there was in fact no obligation for him to file a return in the first place.
There is no freestanding requirement in the UK for an individual to submit a return.
The obligation only arises when HMRC has issued a taxpayer with a notice to file a return.
HMRC argued that as he was a company director the taxpayer in this case had an obligation to register for self-assessment and complete a tax return without reminder from the tax office.
HMRC were challenged by the tribunal to give legal justification for their argument.
They relied on a statement on a government guidance note on running a limited company which states ‘as a director of a limited company you must register for self-assessment and send a personal self-assessment return’.
The tribunal said this guidance did not accurately reflect what the law says and that a taxpayer is under no legal obligation to follow it so the taxpayer’s appeal against the penalties was upheld.
The second case was also a penalty case for failure to make a return on time, this time a partnership return.
The taxpayer’s argument was that the guidance notes accompanying the return were misleading. They said that the taxpayer had the choice of filing on paper or online.
In the latter case the note said ‘you will need to use commercial software which you may have to buy’. In fact there is no free commercial software for partnership returns. The taxpayer said that in saying ‘…which you may have to buy’ HMRC was misleading taxpayers, because there is no ‘may’ about it: HMRC should have said ‘which you will have to buy’.
On the strength of that statement the taxpayer decided to file online rather than submit a paper return.
When he came to file the return however he was aggrieved to find that he had to buy software.
So he filed a paper return, but because he had missed the 31 October filing date for paper returns he was charged a penalty.
The tribunal was sympathetic and thought that, in itself, his reliance on HMRC’s statement constituted a reasonable excuse but that did not mean that he escaped a penalty.
The tribunal decided that once he had realised that he had to purchase software he should have done so.
Mr Hubbard said: “So two different cases – with two different outcomes. But linked by the common thread that guidance was either wrong or misleading.
“Anybody who has ever written about tax knows how difficult it is to explain technical matters in clear and unambiguous language without going into reams of technical language. So I have some sympathy with HMRC.
“But neither of the points raised in these cases is particularly difficult and it does seem that reasonable care was not taken in the drafting of the guidance.
“HMRC rightly expects taxpayers to take reasonable care in filing their returns: is it unreasonable to ask HMRC to take the same level of care in guidance notes?”
In response to Mr Hubbard’s comments, a HM Revenue & Customs spokesperson said: “We provide guidance notes to assist customers through the self assessment process, and every care is taken to ensure that they are accurate and informative.
“We also use customer feedback to ensure that they are as clear as they can be.”
emma.hughes@ft.com
