The HMRC Charter is an important document for protecting taxpayers' rights and has had legal force since the Finance Act 2009.
The charter confirms that HM Revenue and Customs will work within the law to ensure that everyone pays only the correct amount of tax.
Importantly, taxpayers have the right to appeal to an independent tax tribunal if they disagree with the amount of tax being claimed. The charter also says: "We will take your wider personal situation into account".
Tax inspectors have their own compliance manual, which states on CH14300: "We do not require payment of disputed fines in any regime until the dispute has been resolved. If you appeal against a fine, you must take measures to combat debt management."
Most of my meetings with tax inspectors over the years have been professional and pleasant. One thing that irritated me, however, was when one of them (there were always two of them) looked at me seriously and told me that I had to realize that we were dealing with public money. My response was that the money discussed belonged to my client and would remain so unless or until my client or a court decided otherwise.
In short, taxpayers have the absolute right to dispute any tax or penalty claim. They must not suffer any financial loss in defending that right. In light of this, I found the recently reported case of Erridge vs Revenue and Customs so poignant.
I will introduce the case here with words from the judgment: "Mr Erridge is dyslexic. He doesn't read books because he can't recognize and retain the material on the page to follow a story. His spelling is extremely poor. He left school at the age of 16 and started working in the concrete mortar industry."
Mr. Erridge did not allow these difficulties to deter him. He married and the couple had their first child in 2002, a second in 2008 and a third in 2013. Mrs Erridge applied for child support accordingly. They managed to save enough to buy their own house. Mr Erridge worked hard, and in 2012-13 his income was £36,000 - all taxed through PAYE. In 2013-14 his income rose to just over £50,000. Readers will understand that this brought him under the High Income Child Benefit Charge (HICBC) regime.
However, what happened next could have happened in other tax situations.
On November 10, 2022, Mr Erridge received seven tax notices relating to HICBC, totaling £15,374. Shortly afterwards he received a demand for penalties of £4,151 for failing to notify HMRC of his HICBC liability, raising a total of £19,525.
This was obviously very disturbing to Mr Erridge, and far more than he could afford to pay. He appointed Mr. Keith Alden of MCO Accountants to represent him. Mr Alden wrote to HMRC appealing the assessments on behalf of Mr Erridge and asking for a payment plan.
On 23 December 2022, HMRC wrote to Mr Erridge again refusing all appeals. Mr Erridge again attempted to agree a payment plan for the tax and penalties so that he could pay the stated amounts over a period of time. However, HMRC told him that he did not earn enough to agree a payment plan with him, and that collection of the total amount assessed, plus accrued interest, would be transferred to an external collection agency.
He was then told that he needed to find a lump sum to pay HMRC and that he needed to take urgent action.
The only significant asset he owned was the family home. He contacted a local real estate agent and asked him to put the property on the market at the "sell now price". This was less than what could have been obtained if the house had been sold at market value.
Mr Erridge received an offer within two weeks, the property was sold and HMRC was paid, at which he suffered a financial loss.
However, in court the judges concluded that Mr Erridge had not been careless and as a result they revoked all sentences. They have also canceled five of the six assessments, leaving just £2,500 for 2018-19. They also wanted to abolish that, but were prevented from doing so by the relevant legislation. Instead, they encouraged HMRC to surrender the remaining assessment using their powers under Additional Statutory Concession A19.
They concluded: "It is not in dispute that Mr Erridge was pressured by HMRC to raise money to pay the assessments and fines and had to sell the family home to do so. So he has suffered financial loss and suffering."
Referring to the HMRC Compliance Handbook CH14300 mentioned above, they said: "HMRC therefore acted contrary to their own guidance by failing to prevent the collection of the fines."
In summary, Mr Erridge was forced by HMRC, contrary to their own guidelines, to sell his house at a discount when the actual tax owed was at most £2,500 - or nothing at all, had it accepted the judges' request.
However, an HMRC spokesperson said: "ESC A19 may not apply if the customer is required to notify us of a liability such as HICBC. We do not agree with the tribunal asking us to apply ESC 19."
I invite readers to look at paragraphs 69 to 72 of the judgment and consider whether they think the judges were suggesting that HMRC should do this. The case can be consulted here.
Last week I raised my concerns about another tax case, which revealed some very serious failings on the part of HMRC. That taxpayer rightly received an apology. However, Mr Erridge's case is an even worse example of the way some HMRC officers have operated. In my view, HMRC should now offer Mr Erridge compensation for the full amount of his financial loss on the sale of his home, together with a payment in recognition of his costs and the distress he has unnecessarily suffered.
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I asked an HMRC representative if they would apologize and compensate Mr Erridge for his financial loss. They declined to answer that question, but noted: "We will never ask a client to sell their primary home to pay their tax debt."
There have been more clashes between the government and the judiciary in this parliament than I can ever remember. It may frustrate politicians, but the independence of the judiciary is fundamental as a means of protecting citizens from overzealous government departments - especially HMRC.
Historically, our judges have come primarily from the ranks of lawyers. However, this appears to be changing as more lawyers and accountants go to court.
A good example is Anne Redston, who was a senior judge in this case. She is an accountant and previously head of UK tax at EY, one of the big four accounting firms. She has extensive tax experience and an honest mind, which she has made full use of in her statements. She has also not shied away from criticizing those before her where it was justified. I see this as a very positive trend.
