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KEY POINTS
- HMRC propose that they should have power to debit customers' bank accounts.
- A sorry tale of mistakes and lack of communication.
- How does an incorrect demand fit the self assessment system?
- The difficulty of contacting HMRC.
- The questions that need to be answered before collection powers are enhanced.
This is a true story. For me, it is a fundamental reason for rejecting any suggestion that HMRC's powers should be extended to enable HMRC to 'attach a taxpayer's assets directly, without the need for an application to the court'. (These words are taken from para 5.10 on page 21 of HMRC's Consultative Document, Modernising Powers Deterrents and Safeguards: Payments Repayments and Debt (25 June 2007) at www.hmrc.gov.uk/consultations/index.htm.)
Let me tell you a story …
An individual, who shall be known as 'Ted', has a chartered tax adviser acting for him. His 2005-06 tax return was filed on 24 January, 2007. The return contained Ted's self assessment. The tax due, according to that self assessment, was paid by 31 January 2007, together with the first payment on account for 2006-07. All was well with the world.
On 27 March 2007, Ted received a statement of account, indicating that tax of approximately £500 was due. His CTA was not copied in on this correspondence. Ted wrote to the Collector in the following terms:
'Please note that my self assessment corresponds precisely to the payments made. If different amounts are being claimed, I will require an explanation from HMRC.'
At the same time, Ted wrote to the Inspector in the following terms:
'If you consider there was an error in my self assessment, please send me a full reconciliation and it will be considered. I would mention that my agent has received no communication about any discrepancy either.'
On 9 May 2007, Ted received a letter from the local debt management office. His CTA was not copied in on this correspondence. This letter ignored the points made previously, but did enclose a form to claim for reductions in the 2006-07 payments on account, in case that might be needed. This letter somewhat irritatingly included the well-known and much disliked 'to improve customer service …' paragraph!
Ted wanted HMRC to be able to improve customer service so he made sure to include the reference number on his reply which was couched in the following terms:
'The amounts paid by me were all in accordance with my self assessment. Therefore, there is no reason for me to be receiving a demand. If it is considered that there was something wrong with my self assessment I shall require an explanation, with a reconciliation.'
On 19 June 2007, Ted received a demand for the second instalment on account for 2006-07. The figures continued to reflect the 'rogue underpayment'. Ted wrote to both the Inspector and the Collector on 27 July, having heard nothing more. He enclosed the correct payment on account and attempted to explain the situation:
'What needs to happen is that someone should get all the correspondence together and explain why it is considered that my self assessment was wrong, or, (preferably), confirm that my account is up to date and no further tax is due. In the latter case, the Collector of Taxes needs to be notified of the position before I start getting menacing demands …'
A few days later — you've guessed it — Ted received a debt demand from the local debt recovery office. This demand stated:
'You do not appear to have paid the amount shown on the attached statement of liabilities. Unless you have paid in the last few days you must pay the full amount by 6 August. If you do not, I may start legal proceedings against you to collect the amount unpaid. You may have to pay the costs of any such proceedings.'
For his sins, Ted knows a little bit about tax, and so does his CTA. One can only imagine the impact upon someone amongst the vast majority of taxpayers who has no such knowledge. The word 'intimidating' springs to mind!
Understanding the self assessment process
The self-assessment process can be found in TMA 1970, s 9. This states that the tax due is the tax that is self assessed. Nothing more is due from Ted. If the Inspector notices an error in Ted's return that requires an amendment (a possibility that even with the help and advice of a CTA cannot be entirely ruled out, given the complexity of the tax system), then an officer may make an amendment under TMA 1970, s 9ZB.
Paragraph 2 of that section states that a correction can only be made by notice to the person whose return it is. Even if Ted's Inspector believed that a correction had been made, in the absence of any notice, it has not. So we can establish with certainty that this tax cannot be due from Ted.
Demanding money that is not due in this manner sounds to me like a breach of Ted's human rights, but we'll leave that aside. HMRC are now seeking the power to dip straight into Ted's bank account and relieve him of this money. Alright, I exaggerate slightly; I accept that there would be safeguards and it might not happen this way, but I oppose this power.
There is no proposal that I should be able to dip into the Exchequer's account when my refund is overdue and neither should HMRC have the ability to bypass proper safeguards. Seriously, though, Ted may be applying for a mortgage, and court action to pursue this non-existent debt could have damaging consequences for his credit rating.
Can I speak to someone?
So, without access to his tax file, and with the customary feeling of dread associated with dialling such numbers, Ted reluctantly telephoned the 0845 number given on the communication. He spoke with someone in Scotland (not the office from which the letter was purportedly sent). He was advised — incorrectly, but authoritatively — by someone with access to computer records, that the amount demanded was in accordance with his self assessment. Ted didn't believe this, but he was in no position to disprove it. He started to doubt his CTA. He was advised to pay up. He considered doing so.
Ted, however, is made of sterner stuff. He obtained a copy of his self assessment tax return and was able to call the 0845 number again, the following day. He was not best pleased at having to waste his time, but in the circumstances he wanted to avoid legal action. Speaking with a second person in Scotland, with irrefutable evidence that the demand was wrong in front of him, Ted was effectively told that he might not be telling the truth in order to avoid paying what he owed! The speaker was acting on information from the 'processing office' (oh for the days when there was a 'tax office'!), via a computer link.
Evidently that link was not available to the personnel in the local debt management office who send the 'boys' round. All that could be done was to send a message for the local debt management office. No assurance that it would be seen or acted upon could be given. No action to speak to the processing office would be taken. Ted did not have a telephone number for the debt management office. Ted was told it was up to him to speak to the processing office.
Now, Ted is a patient man, but everyone has their limit and at this point, Ted 'lost it'. He explained that, no, it is not his responsibility to ring another 0845 number in the vain hope of being able to speak to a living being. He had already tried that and been advised to 'call again later' (as though he had nothing better to do). The mistake was not of his making and was not his to sort out. If the phantom 'debt' was pursued, the only person pursuing costs would be him, and boy, would they be pursued, together with substantial damages (sorry to disillusion you, Ted …)!
The end in sight?
As I write this, the matter has not been resolved, although I imagine it soon will be. It seems that someone simply input some wrong numbers on receipt of the return. Mistakes like that happen and of course we forgive them. However, there are some questions for Dave Hartnett:
- Why is Ted's original correspondence unanswered after some four months?
- Why has his subsequent correspondence also been ignored?
- When will it be possible for the average taxpayer to contact HMRC by email?
- Does HMRC care about the relationship between a taxpayer and his registered professional adviser?
- How can a non-existent debt be pursued by the debt management office (DMO) after the situation has been explained?
- Why does the local DMO not give its own telephone number on correspondence?
- Why don't the staff at the DMO have access to the same computer records as they do in Cumbernauld?
- Why is Cumbernauld unwilling to speak with the DMO?
- Why is Cumbernauld unwilling to speak with the processing office?
- How many attempts does it take (for someone with sufficient patience) to get through to a processing office by phone?
- How many taxpayers are brow-beaten by this system into paying tax that is not due?
- How can anyone justify even asking for extended recovery powers while this situation persists?
Mother knows best
I suspect many practitioners will have a similar tale or experience. Even if I was sure that such scenarios would not occur, I cannot imagine the circumstances in which I would support direct access to a taxpayer's bank account. Once we have a system that can deal with the fundamentals of tax collection — the ability to speak to someone who both understands how the self-assessment tax collection system works and who can take effective and immediate internal action to correct mistakes, then I might be more enamoured of these proposals.
But not all taxpayers who apparently owe tax are naughty children who cannot be trusted to pay their tax on time and HMRC's ability to take unilateral action — 'Mother knows best' — and debit a bank account is more than likely to lead to tears before bedtime.
Andy Wells is with Mercury Tax Group, where he provides tax support and advice to accountants and other professional advisers. He can be contacted by telephone on 0870 114 2800 (or e-mail: andy@mercurytax.biz).
What do you think?
Readers who wish their views or comments to be heard on these proposals can contribute via this website's Consultation on tax collection' page, and contributions can be added via the 'discussion forum' at the foot of that page.
