Adjudicator's Report - Complainants' Champion

ALLISON PLAGER makes a foray into the Adjudicator's recently published 2001 annual report.

COMPLAINANTS ARE HAVING to wait less time to have their complaints investigated, announced Dame Barbara Mills in her 2001 annual report. She was very pleased to report that in the year to 31 March 2001, the average throughput time to investigate complaints was around 24 weeks, and that for the year to 31 March 2002, this was expected to reduce to 20 weeks.

The Adjudicator's Office closed 673 cases in 2001, which was 27 cases less than the 700 target, but nonetheless Dame Barbara sees this as a 'commendable achievement', and adds that it is ten per cent more than the number closed in 1999. Furthermore, there is now only a 'very small number' of cases that have been open for at least 12 months, and Dame Barbara's aim is to 'eliminate these completely in the coming year'. Dame Barbara was also pleased to note that 'once again' the proportion of cases settled by mediation had increased.

What however, do the complainants think of the Adjudicator? It is not surprising that those whose complaints were upheld were happiest, with a satisfaction level of only 53 per cent of how complaints investigated were handled. With regard to assistance cases, an overall satisfaction rating of 72 per cent was reported.

On the part of the organisations themselves, 95 per cent of the senior management were satisfied with the quality and fairness of the information provided to them about investigation cases. 

The issue of the quality of agents' work was also touched upon in the Adjudicator's report, insofar as Dame Barbara mentioned the talks initiated by the Adjudicator between the Revenue and the professional accountancy bodies. The talks discussed working together to improve the service received by accountants' clients, and resulted in a pilot scheme identifying practitioners who might benefit from additional training and education, to be provided by the relevant professional body. This is all very well for practitioners who belong to professional bodies, and have to undertake continuing professional education as part of their membership, but does nothing to protect the public from practitioners who are not qualified, and from whom there must presumably be greatest risk. But perhaps this is not an issue for the Adjudicator, and is something which the professional bodies themselves need to address to make the public more aware of the possible risk of using a non-qualified agent.

The 2001 report looks at some administrative and procedural issues which arose from the 2000 annual report, which have seen satisfactory outcomes. For instance, the 2000 report included concerns about the Revenue's administrative limit of £1,000 for collecting tax underpayments by a coding adjustment. As a result, the Revenue has increased the limit to £2,000, which it says should reduce the scope also for inconsistent treatment.

The Revenue has also revised guidance issued to staff in connection with tax repayments based on incorrect figures entered by taxpayers on their tax returns, without making clear that these did not necessarily reflect the final position.

In previous years, the number of complaints upheld against the Revenue has steadily declined. However, in 2001 there has been an increase of four per cent, with 36 per cent of complaints either wholly or partly upheld. There was no obvious reason as to why this happened, but Dame Barbara said that she would 'be watching the position closely over the coming months to see how the picture develops'. The number of complaints against the Revenue numbered 526, including 61 against the National Insurance Contributions Office, and the Adjudicator completed 491 investigations into the Revenue and 69 into the National Insurance Contributions Office. The complaint was not upheld in 309 instances, but in 204 cases the complaint was upheld at least in part. 351 complaints were resolved by recommendation, and 152 through mediation.

Altogether, the Adjudicator recommended that the Revenue pay £481,612 to complainants, a huge increase of £381,122 on the previous year and the most since the inception of the Office. A further £131,711 in compensation for costs arising from Revenue serious or persistent errors was also recommended to be paid. In addition, the Revenue made consolatory payments totalling £13,387 and poor handling of complaints payments amounting to £3,935. In 21 cases, the Adjudicator recommended that the Revenue give up tax or interest amounting to £332,579. The largest single compensation payment recommended was £50,000.

The Revenue accepted all the Adjudicator's recommendations.

The range of complaints covered virtually 'the entire spectrum of work' undertaken by the Revenue. The Revenue claims to be keen to improve customer service, and the result of some complaints must help it discover where inadequacies exist. The following two case studies were decided in favour of the Revenue, but the first resulted in improved Revenue guidance.

For instance, Mr Q appealed against an income tax assessment made as a result of the sale of his shares in a family company back to the company. He appealed against the General Commissioners' decision by way of a case stated to the High Court. As he was unrepresented, the Revenue Solicitor's Office referred him to TaxAid. TaxAid informed Mr Q that his case did not satisfy a test, and would not fall within the legislation upon which he was relying. Mr Q therefore made settlement proposals to the Revenue, which it did not accept. He subsequently lost his appeal hearing, and was ordered to pay the Revenue's costs.

Mr Q complained that the Revenue had not told him about the crucial test, and that had he known about it earlier, he would not have pursued his appeal. He felt that he should not have to pay the Revenue's costs.

The Adjudicator decided that the Revenue had been helpful in referring Mr Q to TaxAid, and that it had acted within the rules covering the preparation of court hearings. However, there was no specific Revenue guidance relating to unrepresented taxpayers, which the Revenue has now decided to introduce.

Another case concerned distraint against Mr B. He said that he did not think that he owed any tax, as he had already received a tax rebate. He complained that the Revenue acted unreasonably in seeking distraint with the result that his car was taken along with other goods. Initially, the Adjudicator was 'very concerned' by the Revenue's actions, but after investigation decided that it had acted reasonably. Mr B had received several monthly self-assessment statements about the tax owed, and the Revenue had written warning him that legal action might be taken.

Another case related to a breakdown in communication, resulting in needless work carried out by the taxpayer's agent. The Inspector misunderstood a 'not negotiated' valuation from the Valuation Office, and sent a proposed capital gains tax computation to the taxpayer's agent. The Inspector soon realised his error, but did not inform the agent, who continued to work on the case. The taxpayer therefore felt that the Revenue should pay the unnecessarily incurred costs. The Adjudicator upheld this complaint and recommended that the Revenue pay the costs.

Unsurprisingly, the Adjudicator receives a lot of complaints relating to the way that the Revenue carries out enquiry work and investigations. The report says that several investigations have been 'fundamentally flawed' and have resulted in reimbursed costs. Given the increased importance that the Revenue is placing upon investigation work, it seems likely that such complaints are unlikely to reduce in number.

A Special Compliance Office investigation lasting several years into a transaction carried out by J plc resulted in the Revenue claiming wilful default. The Revenue Solicitor confirmed that the case should be pursued, and listed the appeal for hearing before the Special Commissioners. Eventually, the Revenue agreed that there was no wilful default, and did not pursue the appeal to the Special Commissioners. However, J plc had incurred considerable costs from the investigation, and claimed that the Revenue reimburse these.

The Adjudicator ruled that the investigation had been justified, but that the Revenue Solicitor had not reviewed the evidence properly, thereby prolonging the investigation. Finally, the Revenue agreed to reimburse half of the company's costs.

Another investigation involved the Revenue losing cheques, giving mis-information about payments already made, not providing appropriate information, and charging a section 93(1), Taxes Management Act 1970 penalty without referral to the General Commissioners. The Adjudicator found that the Revenue should not have opened the investigation, and recommended that it reimburse costs of nearly £20,000 plus an amount for interest and penalties incorrectly charged, as well as a sum for poor complaints handling.

Delays on the part of the Revenue are also a great source of complaint, particularly where it refuses to apply Extra-statutory Concession A19, giving up tax where there are Revenue delays in using information. The Adjudicator comments that investigation of complaints mostly shows that the Revenue has used the concession properly, but that in others the Revenue has challenged the 'reasonable belief' test and aggravated the problem.

One case shows a catalogue of inaction by the Revenue. It concerned a retired taxpayer who received income from a pension and employment. Despite the taxpayer providing the Revenue with all the information necessary for it to issue appropriate notices of coding, it failed to take action in transferring records or issuing correct notices of coding. As a result, an underpayment arose. The Adjudicator's Office concluded that the taxpayer had taken all the steps possible to provided the right information, and could have reasonably believed that his affairs were in order. The Revenue therefore waived the underpayment, paid a consolatory payment, paid £50 for poor complaints handling, and reimbursed the taxpayer's personal costs.

The Adjudicator reports that for 2001, the number of complaints upheld against the National Insurance Contributions Office has fallen to 36 per cent from 55 per cent in 2000. Dame Barbara said that this office was 'particularly receptive to the comments and suggestions' made by the Adjudicator's Office.

The infamous National Insurance Recording System 2 has continued to be a source of complaint, for instance the failure to set up and collect direct debits, the failure of existing direct debits and duplicate or incorrect bills, although the National Insurance Contributions Office says that the system is now working and stable.

The Revenue's Code of Practice 1: Mistakes by the Inland Revenue refers to delayed payments of minimum contributions of National Insurance to personal pension plans. The problem arises over the Revenue's policy of making a compensatory payment of interest to a plan where it has been responsible for a delay of at least six months, and what constitutes a delay of six months. The Adjudicator has found that the complication has arisen out of the merger between the Revenue and the Contributions Agency. Before the merger, the Agency measured any delay from the time when it received the information from the Revenue necessary to make the payment to the pension plan, i.e., with the employer's end of year return. The National Insurance Contributions Office, an internal office within the Revenue, is now responsible for making the minimum contributions payment, but still takes any delay as starting from the time that it received the information, rather than when the Revenue received it. The Adjudicator said that it is 'artificial to distinguish between internal offices' of the Revenue, and the Revenue has agreed to look at the procedure in order to produce a consistent policy.

No complaints made against the Valuation Office Agency have been upheld against it in 2001, an achievement unparalleled in the history of the Adjudicator's Office. In all 18 complaints were made, and investigations on 15 were completed. Twelve were resolved by recommendation, and three through mediation. The worst that could be said of the Valuation Office was that there were some signs that 'significant delays' are arising in its complaints handling.

The Adjudicator also reported that after having introduced a system enabling staff who give advice about rateable values to make a note on a computer record of the information provided, new procedures have been brought in so that computerised records can be made of telephone calls, counter discussions and enquiries for cases without related files. The information is retrieved using key words.

Investigation was carried out and completed on 98 complaints against Customs and Excise. Complaints were upheld in 32 per cent of cases, the same figure as 2000. 52 complaints were resolved by recommendation, and 34 through mediation.

The Adjudicator recommended that Customs pay a total of £178,907 to complainants, a rise of £69,975 from 2000, and, as with the Revenue, the most recommended since the Office opened. In addition, Customs paid £29,760 compensation for costs directly arising from their persistent errors, consolatory payments of £900 and complaints handling payments of £850. In three cases, Customs surrendered VAT or interest totalling £147,397, and the largest recommended compensation payment was £16,822. Customs too accepted all the Adjudicator's recommendations.

Most complaints about Customs centred on VAT matters. Complimenting them on their overall complaint handling, the Adjudicator says that they treat complaints seriously and that they try to learn from them at local and board level.

One area which attracted complaint, concerned the clarity of advice and guidance to the public. The Adjudicator comments that Customs need to think about how they can make guidance more accessible, more comprehensive, or simply easier to understand.

One complaint concerned a taxpayer who converted a derelict cottage to live in, and said that Customs had told her at an exhibition, that she could make a claim for a VAT refund under the DIY builders and converters scheme. Her subsequent claim was rejected on the grounds that the scheme only applied to conversions from formerly non-residential buildings. The Adjudicator could find no evidence of Customs having misled Mrs R, so the complaint could not be upheld. But, as a result of it, Customs have undertaken to clarify the full meaning of new building work.

Another complaint concerned the option to tax. This too was not upheld, but the Adjudicator did suggest that Customs review their standard 'option to tax' acknowledgement letter, to include a warning about the potential input tax effects of a change of intention from making taxable supplies. Customs are acting upon this advice.

Internal staff guidance also caused problems. A restaurateur complained about the attitude and behaviour of Customs staff, the standard of correspondence, and delays in dealing with her case. She had also written to her MP about it, but told the Adjudicator that Customs breached confidentiality when they replied to him. Customs rectified some mistakes without intervention from the Adjudicator, and when investigating the alleged breach of confidentiality, the Adjudicator decided that in asking her MP to take up her case, Miss J had effectively given him authority to be a party to her VAT affairs. Nonetheless, it was suggested that the internal guidance to staff about disclosing information to an MP should be improved. This has been done.

While some might consider that there is limited good in the revenue bodies being policed by a department which comprises largely members of those revenue departments, it is clear that the Adjudicator is effective in some ways. If nothing else, the complaints throw up failings which can be acted upon, and produces an apology which often goes a long way in assuaging a taxpayer's complaint. However, apologies are only the beginning, and are useless without supporting action, so it is reassuring to see that the revenue departments act upon suggestions made by the Adjudicator as a result of complaints.

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