Good News, Bad News

An unannounced change of practice is found by RICHARD CURTIS in the latest Adjudicator's Report.

DAME BARBARA MILLS, the Adjudicator, recently presented her third annual report into complaints made against the Revenue, Customs and Excise and their associated offices. Reviewing her officers' own achievements for the year ended 31 March 2002, she was pleased to report that, in accordance with last year's target, there were now no cases outstanding over 12 months old. And almost on target was her aim to complete enquiries within a 20-week period, the reality being about 21 weeks.

While she welcomed the Revenue's and Custom's new leaflets regarding their handling of complaints, there was an undercurrent of concern regarding the 45 per cent increase in the level of complaints against Customs, many caused by the seizure of goods and vehicles in their purge on cross-channel smuggling (a concern shared by Malcolm Gunn, see Taxation, 6 December 2001 at page 239 and 11 July 2002 at page 398 and, it seems, more recently by the High Court in Hoverspeed Limited and Others v Commissioners of Customs and Excise (2002) EWHC 1630)). The result has been an increase in cases upheld and a decrease in the number of cases settled by mediation.

The news from the Revenue was a little brighter. The number of referrals having decreased by about 25 per cent compared to last year, with approximately 30 per cent being settled by agreement. This seems to indicate that the Revenue is getting better at resolving the more straightforward complaints. A slight blot on the Revenue copybook was the fact that 39 per cent of complaints have been upheld, 3 per cent more than last year.

The Valuation Office was unable (perhaps not surprisingly) to maintain its 'clean sheet' into a second year. Compared to none last year, it had 6 of the 17 complaints against it upheld this year - a result that is more in line with other departments.

A full copy of the report is on the Adjudicator's website www.adjudicatorsoffice.gov.uk and Table 1 on the right summarises the year's decisions. On a monetary basis, the Revenue had a better year than the last (which was a record high) with costs falling by over 50 per cent, but Customs' costs doubled as shown in Table 2.

The Inland Revenue

The Adjudicator noted that the introduction of Area Management and the reduction in regions from ten to seven had led to reorganisation in complaints handling teams, which has, in turn, led to some delay.

Dame Barbara was also concerned that complaints were still coming forward relating to the Revenue's reluctance to apply Extra-Statutory Concession A19, 'Giving up tax where there are Revenue delays in using information'.

Case studies under various headings give examples of the types of complaints that arose during the year ended 31 March 2002.

Delays in using information

One case involved a taxpayer who had an occupational pension, but recommenced work and notified the Inspector of the two sources of income on his 1999 and 2000 tax returns. However, his code number was not amended and an underpayment arose. The Revenue apologised and offered costs, but would not forgo the tax. Although the underpayments were identified within the twelve month time limits of Extra Statutory Concession A19, the Revenue had overlooked information on more than one occasion and the Adjudicator held that the taxpayer was entitled to think that his affairs were up to date. The Revenue then agreed to waive almost £2,000 in tax.

Disclosure

Two case studies in the report illustrate that the Revenue must take care when dealing with third parties. In the first case an agent complained that the Revenue had disclosed information to third parties regarding his deceased client's tax affairs. The Adjudicator found that the Revenue was entitled to approach these parties, but had disclosed too much information. In the second case, the Revenue discussed a partnership's tax liability with its bank, which subsequently refused the partnership a loan.

Misleading information

The Revenue can forgo tax if:

• the taxpayer gave all relevant information and explained why advice was needed;
• the Revenue gave clear and unambiguous advice and the taxpayer could reasonably expect this to be accurate; and
• the taxpayer took (or did not take) action as a result of that advice and then suffered financial loss or increased tax liability.

Two examples are given in the report of instances where the Adjudicator held that the above factors did exist and the Revenue compensated the taxpayers.

Policy and guidance

Revenue policy and guidance can also sometimes cause confusion or difficulties and in such cases the Adjudicator may suggest changes.

An approved pension scheme can make only a single tax-free payment to a member. Two members of a scheme received less than they should have due to an administrative error and the trustees complained that the Revenue would not exercise any discretion and allow them to make a second tax-free payment. The Revenue considered that any further payment would be taxable. The subsequent 'good news' was that, although this was not its error, following the Adjudicator's suggestion that 'with a little more flexibility any resulting inequity could reasonably be avoided', the Revenue has now agreed to a change in practice and a single tax-free adjustment can be made 'in cases of genuine and demonstrable error'.

It seems strange that an announcement of a change of practice should be made first in the Adjudicator's Report and I did wonder if I had overlooked a press release or an 'Update' from the Revenue's Audit and Pension Schemes Services (Pension Schemes Office as was). The 'bad news' was that apparently I had not and further enquiries revealed that this matter is currently 'under consultation', apparently with the Association of Pension Lawyers. A news release is expected in September or October, which will set out, in detail, the circumstances in which the Revenue will accept that a second tax-free payment can be made. What happens in the meantime? Presumably anyone in a similar situation should approach the Revenue with a request for concessionary treatment.

Two other cases have resulted in:

• the Revenue's Solicitor's Office preparing guidance on how to deal with taxpayers who are taking appeals to the Commissioners so that they are aware of their potential costs if the appeal proceeds to a higher level; and
• information in the 2002/03 tax return guide (and possibly on the reverse of statements of account) to make it clear that taxpayers can ask to receive a repayment in full and then separately pay liabilities becoming due within the next 45 days.

The Tax Credit Office

The Adjudicator noted that only a small number of complaints were received about the Tax Credit Office, but they have all been upheld. Generally, however, the approach of this office to complaints handling has been lauded for the following reasons.

• An innovative approach of delegating complaints handling to operational level.
• A residential 'summer school' on customer service.
• The Adjudicator's constructive criticisms and recommendations being acted on within a few days of receipt.

Receivables Management Service

The duties of what used to be the Collector of Taxes have, over the past few years, expanded to now include 'the whole process of debt and return activity from the point at which the liability arises to the point at which it is settled or the late return is submitted'. Following a comparison of its function with operations in other countries, a more 'pro-active' (does this word not mean the same as 'active'?) approach is now taken - the Adjudicator also uses the term 'robust', which will probably be more familiar to many practitioners. Surprisingly, this has not led to an increase in complaints, instead, the number is less than half that in the previous year.

The case studies in the Report all relate to bankruptcy, with the Adjudicator deciding that, in two out of the three cases illustrated, the Revenue were too hasty in implementing proceedings.

'NICO'

The spectre of the infamous 'National Insurance Recording System 2' continues to haunt the Revenue's National Insurance Contributions Office. The computer system could not process applications to pay Class 2 National Insurance contributions by direct debit where the applicant had already been self-employed for a period of years. Consequently, these applications were 'stockpiled', but the applicants were not advised of this. The cases in the report confirm that such delays and lost correspondence caused problems, including additional professional costs, for which the Revenue paid compensation.

The Valuation Office

As mentioned earlier, the Valuation Office was unable to maintain last year's 'clean sweep' of having no complaints made against it. The Adjudicator stressed that she could not look at the actual valuation of a property, but could ask the Agency to reconsider a valuation if it had been made using incorrect information. Delay, poor record- keeping, misleading advice and disclosure of information were the main reasons for the complaints

Customs and Excise

The Adjudicator notes that, while in previous years approximately 80 per cent of complaints against Customs related to VAT, the last year has seen a large increase in complaints relating to the seizure of goods and vehicles as the department has concentrated on the quantities of alcohol and tobacco imported. The department is, however, noted as taking positive steps in defining and putting into place its revised complaints structure. How this will be affected by the Hoverspeed case remains to be seen. Customs state that their right 'to protect the public purse has been upheld', although they note that the Court has made 'a number of rulings affecting Customs procedures'.

The Report looks separately at the Law Enforcement and Regional Business Services business streams within the department and includes some case studies as below.

Law Enforcement

The Adjudicator does not comment on the department's policy regarding its activities against those importing goods from the Continent, but notes deficiencies in information given; for example, it should be made clear that travellers risk losing a vehicle if guidelines were exceeded, and the potential penalties when importing goods by post should be publicised.

Vehicle seizure

Cigarettes, tobacco and alcohol purchased by Mr A and Mr B, as well as Mr A's car were seized. Customs provided written information on the goods seized and appeal procedures. Subsequently, more documents were issued, which were incorrect and this error was not corrected for a further six weeks. The Adjudicator criticised the department's recording of incorrect information and its failure to answer questions. Although procedures at the time were deemed acceptable, improvements were recommended to the issue of follow-up documentation and written information relating to the recovery of personal effects and the issue of copy receipts and documents retained by Customs.

A drop-off

After having had his car (and goods) seized by Customs in France, the security company contracted by Customs and Excise to take travellers to the United Kingdom dropped him off at midnight at a motorway roundabout on the edge of Folkestone. The Adjudicator did not agree that the department was not responsible for this and a consolatory payment of £100 was made.

Inappropriate disclosure

Mr E maintained that the 7,000 cigarettes he was carrying were for his own use. Without his knowledge, a Customs and Excise officer telephoned his wife to discuss her husband's smoking habits, after which he was allowed to leave (with his cigarettes). The Adjudicator upheld Mr E's complaint about this 'covert' activity and a consolatory payment of £50 was made. Revised guidance notes are to be issued that such action should only be taken in exceptional circumstances and as authorised by a senior officer.

Regional Business Services

Following previous concerns of the Adjudicator regarding record-keeping, especially given its importance in allegations of mis-direction, Customs and Excise produced an internal leaflet setting out good practice. However, the Report notes instances where record-keeping continues to fall short of the department's own standard.

On the plus side, the Report does list cases where the department has improved its guidance following complaints. For example, following a complaint where a visit was made by three officers who also entered private premises without permission, the Adjudicator suggested that only rarely should a visit by more than two officers be necessary. The presence of three officers was thought 'oppressive', and notes regarding entry to premises should be kept and written consent should be obtained.

Also, following complaints from traders, the department is rewriting Notice 989, 'Visits by Customs and Excise Officers' and is reviewing its guidance on confidentiality.

Two ends of the telescope

For those of us in the tax business, it is perhaps easy to become a little jaundiced at the arrival of another Adjudicator's Report and to concentrate on the examples of poor judgment by the revenue departments. The departments themselves view things from a slightly different viewpoint. Customs and Excise Chairman, Richard Broadbent, 'was pleased the Adjudicator recognised the seriousness with which the department treats complaints' and pointed out that 'over 80 million people travel in and out of the United Kingdom every year, against which there were 41 complaints taken for full investigation by the Adjudicator'.

Nick Montague, the Inland Revenue Chairman noted that the 'continuing efforts to improve the way we deal with complaints have resulted in a further fall of 25 per cent, following 18 per cent last year, in the complaints going to the Adjudicator'. It will be interesting to see, when the Revenue's Annual Report is published, whether this fall is reflected in the total number of complaints made for the year ended 31 March 2002. The reports for the last four years are published on the Revenue website and, as can be seen in Table 3 on the previous page, these generally show a rise in complaints compared to an apparently static taxpayer base. The 2000 year seems to have been an exceptionally bad year, when the Revenue baulked at actually including the total figure in the report, preferring to express it as a percentage.

'An opportunity to shine'

Strangely, following press releases of its own for the previous two years, there is no mention of this year's Adjudicator's Report on the Revenue's website and the Revenue response is rather hidden away by being tacked onto the end of Customs' News Release 55/02.

If there is a commitment to the adjudication procedure, I believe that this, like justice, not only needs to be done, but should be 'seen to be done'. So why then is there no separate Inland Revenue news release or link to the report on its website? 'Operational reasons' seems to be the official response. I still sometimes find a residual resentment by practitioners at the Revenue's use of the 'customer' tag - usually followed by an expression to the effect that the taxpayer is unable to take his business elsewhere. As the Revenue has absorbed other payment functions such as tax credits, etc. its rationale behind the use of the term 'customer' has become clearer, but although we may not be able to take our 'business' elsewhere, that should not stop the revenue departments acting as if they are fully aware that we can not.

While a reduction in complaints is to be congratulated, I do think that there is a certain British reluctance to complain and if we are unsatisfied with a product or service our natural response seems to be to not patronise the establishment again and moan about it to our friends and neighbours, thus resulting in more potential lost business. I am reminded of a local shop which has the well-publicised policy of welcoming complaints on the basis that it is 'an opportunity to shine' by showing how well it can put the problem right; this is an approach which, I think, actually improves customer loyalty. Perhaps this is a lesson that, despite the 'enabling rather than enforcing' motto, both the revenue departments are still a little way off learning. If this commitment were to be fully taken on board by all levels of staff, I suspect that it could move the 'customer relationship' between taxpaying public and tax collecting civil servants to a much higher level.

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