Appeal uncovers flaws in HMRC's data

Appeal uncovers flaws in HMRC's data

Concerns have been raised about how HM Revenue & Customs handles data after a recent court case revealed the taxman does not always keep all evidence on taxpayers' filings.

Andrew Hubbard, tax consultant at accountancy RSM, said it was shocking that HMRC said in a witness statement in a tax penalty appeal case that their data retention policy means the tax office does not keep copies of individual penalty notices.

Therefore, HMRC admitted it was unable to retrieve all of the details relevant to individual cases.

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The tax office also stated in court that when a penalty is issued, the HMRC self-assessment system does make a record on the individual's tax record.

This records the amount of penalty charged and date such assessment/notice is issued.

The system will also show the latest known address to which such notices have been issued.

Also, the taxpayer will receive a statement of account which would include the amount of any penalty.

Mr Hubbard said: "Given that there are stringent record keeping requirements for taxpayers (HMRC guidance on record keeping runs to 19 pages) and penalties for failure to keep proper records, it is astonishing that HMRC doesn't hold itself to the same standards.

"If a taxpayer wishes to contest a penalty, which HMRC has imposed, the burden of proof is on HMRC.

"In other words, the taxpayer does not have to show why a penalty should not be imposed – it is for HMRC to demonstrate that a penalty is due. One of the letters that HMRC has to show is proof that it has given the taxpayer notice of a penalty to pay.

"However, it is clear from this statement that HMRC has a deliberate policy of not keeping copies of notices.

"It has been a concern of ours for some time now that HMRC is all too often unable to produce the evidence that it needs to prove its case in a tribunal." 

In the past, Mr Hubbard said he had thought that that was sometimes due to problems in particular cases but he said the witness statement given as part of an appeal confirmed it is HMRC's policy to deliberately not keep copies of notices.

He said: "This is an issue of policy, not of resource. Not enough thought was given to data retention when the current HMRC IT systems were put in place.

"It may be too late to do anything about it now, but proper data retention processes must be built into any new systems designed for Making Tax Digital."

Financial adviser Floyd Fombo, from Bristol, said this was concerning.

Mr Fombo said: "It is a bit of a concern when part of the government can't handle data, especially when there is so much emphasis on everyone else keeping data safe."