HMRC's poor administration and appeals process, and its threat to take man to court

What happened

After an enquiry into Mr T's financial affairs, HMRC sent him income tax and VAT assessments. An internal review of the case considered the VAT assessment, but not the income tax assessment. 

In autumn 2010, Mr T's accountant appealed against the results of the internal review. In the months that followed he asked HMRC to confirm that the internal review and appeal covered both the income tax and VAT assessments. If not, he asked it to do so, in order that Mr T could appeal against the income tax assessment. He also asked HMRC to postpone collection of all the assessments and penalties while Mr T pursued the appeal.

The officer who had issued the income tax assessments was unaware of the appeal. She told the accountant that the internal review had covered both types of tax which it had not. She also told him that he had missed a time limit to appeal. In the following months HMRC sent Mr T revised income tax and VAT assessments totalling over £55,000, plus penalties and also payment demands. It threatened court and bailiff action.

Despite complaints from Mr T's accountant, it was not until early spring 2011 that HMRC told Mr T that it recognised his income tax appeal.

In late spring 2011, HMRC's appeals department looked at the case. It found that the internal review had not considered whether a key piece of evidence was acceptable to a tribunal hearing. It decided that it was not, and this meant it should not defend the appeal. Accordingly, HMRC withdrew the income tax and VAT assessments and the penalties.

Mr T complained to HMRC that its basis for pursuing the assessments had been flawed from the outset. He said it had hounded him, caused him stress and that he had had to sell his business. He asked for compensation for this. HMRC and the Adjudicator's Office did not uphold his complaints.

Subsequently, Mr T asked HMRC to meet the cost of his accountant's work on his case.

HMRC said that the decision not to defend the appeal might have been made sooner, at the internal review stage, if it had considered that the key piece of evidence was acceptable. However, it added that it could be argued that only its appeals department could take the decision to withdraw. On that basis, HMRC met half the cost of the accountant's work in appealing against the VAT (£1,500).

What we found

There were flaws in HMRC's internal review. On the balance of probabilities, HMRC would have decided not to defend the appeal at the internal review stage were it not for these flaws. Because of this Mr T paid unnecessary accountancy fees.

HMRC handled the attempts to appeal against the income tax assessments poorly. It sent payment demands instead of suspending them, which meant more worry and accountancy fees for Mr T.

There were mistakes in HMRC's actions during the course of its enquiries. It gave misleading information about how its VAT enquiries came about, and it did not properly grant Mr T his right to object to an inspection of his business.

We partly upheld the complaint about HMRC. We did not uphold the complaint about the Adjudicator's Office that it had not dealt with Mr T's case fully and fairly.

Putting it right

HMRC apologised to Mr T and to his accountant. It paid Mr T £100 for the worry caused by its poor handling of the appeal against the income tax assessment. HMRC paid the other half of the accountant's fees in relation to the VAT appeal (£1,500), and a further £3,255 to meet all the accountant's fees for trying to sort out the confusion over the income tax assessments. HMRC agreed to highlight this case within the relevant business areas so that lessons could be learnt.