This week's opinion: 12 September 2019

What should HMRC do when faced with taxpayers who have failed to declare profits and then refused to co-operate with the ensuing enquiry? It must be able to do something and it is inevitable that any figures which are assessed will be rough and ready. But HMRC does not have carte blanche to make up figures.

The case of Cussens, reported on page 7, shows that HMRC has to exercise best judgment in raising assessment and has to be able to demonstrate that it has exercised it – something it could not do here. HMRC’s litigator could not explain how its proposed assessable profit figure had been arrived at. Judge Jones, in a characteristically robust decision, concluded that the discovery assessments were not valid: they were not for the purpose of making good a loss of tax but had been issued almost in terrorem, in other words to frighten the taxpayer into providing HMRC with information. Reading that, my mind went back 30 years to my days as a trainee inspector. I recall being told that in cases of non-co-operation I should raise higher and higher estimated assessments until the taxpayer responded. I do not know whether that was official departmental policy, but it certainly happened: it looks as if the same thinking still applies.

HMRC has a difficult job in these cases and there will be those who think that it is not tough enough on taxpayers who blatantly fail to meet their obligations. But there have to be limits and we can be thankful that we have an independent and forthright judiciary capable of challenging HMRC just as strongly as ensuring that taxpayers’ attempts to shirk their responsibilities are not tolerated (see Wasteway, also reported this week).

If you do one thing...

Read the guidance from HMRC on what to do following the decision to postpone the reverse charge mechanism for construction services (tinyurl.com/rcb102019).