Flesh & blood: Is there an issue with HMRC moving goalposts on penalty automation?
One glance along the high street is all that’s needed to recognise the degree to which modern life has changed our perception of Hallowe’en… Its origins as the start of a festival to commemorate the dead have been forgotten by most people, overtaken by a glut of ghouls, scary movies and pumpkin lanterns.
Sceptical souls might even argue that HMRC has jumped on the banshee bandwagon with a suitably-timed announcement which may have provided just as much of a shock as the annual cluster of trick-or-treaters at the front door.
As the clock ticked down on October the 31st, the Revenue decided to issue what, on the face of it, was a rather anodyne note entitled ‘Securing the tax base’.
Securing the Tax Base
Look beneath the headline, though, and it became clear that this was not the kind of boast of HMRC’s efficiency which has become the norm in recent years.
It begins by explaining how HMRC has employed various automated processes “for many years” to help with “the assessment and collection of taxes” before going on to acknowledge that the process “has been challenged in the courts on the basis that it is not supported by legislation”.
Without bowing to either Hallowe’en-induced fear or favour, I should point out that the Revenue’s phraseology is not strictly correct.
The truth is that HMRC’s automation of penalties has not only been “challenged” but entirely dismantled, in a series of recent rulings.
Presiding at a First Tier Tribunal, Judge Richard Thomas determined that a penalty handed down to a property business, Khan Properties Limited, for submitting its company tax return six weeks late was invalid.
His decision wasn’t only based on the firm’s twin assertions that this was a first offence and that the tax itself had been paid on time.
In what was regarded as a significant development for other similar matters, the judge concluded that HMRC’s automation was at fault, given that it did not meet with the requirement of the 1970 Taxes Management Act (TMA) for “a flesh and blood human being who was an officer of HMRC to make the penalty assessment”
Further, there have been subsequent rulings in respect of Self-Assessment with Peter Groves, Nigel Rogers and Paul Smith all succeeding in front of the FTT. Again, it was held that a real officer, not a digital surrogate, should have signed the relevant notice.
I reckon that it’s a limitation which many taxpayers and even a few tax advisors might have found quite surprising. Indeed, in principle, I have no objection to certain penalties being generated automatically.
The huge concern here is, once again, HMRC jumping back in to its ‘way back machine’. The paper outlines how these provisions, to be included in the next Finance Bill, “will apply both retrospectively and prospectively in order to safeguard revenue charged since automated processes were introduced by HMRC”.
Furthermore, you might be forgiven for scratching your head at the Revenue’s puzzling pronouncement that “this is not a new policy”. Indeed, it is described as a “clarification” and to “provide certainty regarding the statutory basis for the existing policy and practice which has been in place for many years”.
However, this is clearly bunkum.
The Courts have decided that HMRC’s understanding of the law is incorrect. The law is that a computer cannot issue notices where an officer is required.
It is clear that HMRC expect some kind of PPI style avalanche of claims for refunds. Indeed, I understand that there are a number of cases in the system.
Clearly, these changes will remove the rights of those currently in the pipeline, or considering an appeal, as the rules will apply retrospectively. Only those who have received a “settled judgement from a Court or Tribunal regarding the use of automation before [31 October 2019] will not be subjective to the retrospective application…”
As I set out above, I have no problem with the automation of late filing penalties and similar. However, if HMRC has to change the law it should do it prospectively.
If HMRC can continually use a retrospective Elastoplast to cover up its errors then that is a scenario which many will rightly find really scary.
If you have any queries about this article, or tax matters in general, then please get in touch.