Friday 13 January 2012

HMRC's Money Making Scam



In December I wrote the following about HMRC's shabby attempts to screw taxpayers for late payment fines, by deliberately delaying sending out penalty notices:

"My thanks to a loyal reader, who dropped me a note about a penalty notice that he had received from HMRC. The penalty notice prompted him to search through some case history, with some interesting results.

Read on..
.

"In September this year I was issued with a penalty notice for failure to file my employers end-of-year return on time. 

In my appeal I queried why I had not been informed earlier, when the amount of the penalty would have been less. 

Enough about my own troubles - except that this matter prompted me to do a little research. 

I found that in recent tax tribunal findings, scurrilous behaviour on the part of HMRC has been revealed.

In HOK Ltd and Commissioners HMRC, 22nd June 2011 it was stated in the findings:

'...Thus, HMRC deliberately waits until four months have gone by and does not issue the first interim penalty notice until, as in this case, September of the year of default. 

By that time a penalty of £400, being four times £100 per month is said to be due....."

I am therefore pleased to see that others have also noted that HMRC are playing dirty.

The Independent reports that the state is "unlawfully using late-payment penalty fines against tens of thousands of small firms who do not file their tax returns on time as a "cash-generating scheme" for the Exchequer."

I have warned about the state (which is bankrupt) using HMRC fines to screw taxpayers for as much money as possible,  many times on this site.

This warning has been proven to be correct, the state is using fines to generate revenue; and HMRC is ensuring that the fines are as high as possible. The Tax Tribunal has ruled that HMRC is operating a policy of "deliberately" waiting months before alerting businesses that have not filed their tax returns, so that late payment fines stack up.

On the assumption that this judgement is upheld on appeal, it could result in between 50,000 and 100,000 firms being able to claim refunds on tens of millions paid in fines.

The judge, Geraint Jones, QC, said


"It is no function of the state to use the penalty system as a cash-generating scheme.

We have no doubt that any right-thinking member of society would consider that to be unfair and falling very far below the standard of fair dealing expected of an organ of the state."

Well said!

The scam operated by HMRC ensures that firms are given no notification of a failure to complete their end-of-year return by the May deadline. Instead, HMRC waits until September before sending out a computer-generated letter telling them they have failed to complete the return and are liable for four months of late payment fees of £100 each plus another £100 fine for late completion.
HMRC attempted to weasel out of the accusation by claiming that that it was not obliged to provide reminders to firms who failed to submit the correct tax returns, and that the penalties for doing so were clearly publicised.

However, Mr Jones saw through HMRC's weasel words and noted that when Parliament legislated to allow a penalty fine it did so "to encourage compliance and, in cases where compliance did not take place, to levy a proportionate penalty".

He added:

"It is unthinkable that Parliament would intend a manifestly unjust situation to arise as a result of HMRC being dilatory in sending out a first (or subsequent) penalty notice."

HMRC denied it was using penalties to raise revenue.

It would say that though wouldn't it?



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21 comments:

  1. HMRC would deny that the sky was blue if it was in its interests to do so. The fact is HMRC has become an embarassment of a government department with its flagrant attitude and semantics for any critisism levelled at it as well as well as borderline criminality. The fact that it is answerable to almost no one should be radically overhauled. The fact it can behind tenuous legal confidentiallity arguements should be curtailed immediately. This wont happen though as the government has too many self interests at stake as well as reputational loss. It makes you sick that all these issues get swept under the carpet. As much as i applaud the PAC for its robust critisim of HMRC's antics I would expect very little will happen and if it does will be a token gesture.

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  2. I am just waiting for HMRC to tell me that they 'need to get some money out of the country' if I would only help them by giving them my bank details and password...

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  3. Simple solution of course is to file on time and avoid the penalty.

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  4. We are told on EHL that the reason the penalties are for a 4 month period is that it takes the employer office in Newcastle that amount of time to process all the P35s and therefore discover the missing ones. This is complete bollocks. The employer cannot even phone the office that issued the penalties. If they wish to appeal the penalty they must write to Newcastle which is now the only employer unit in Britain. HMRC is a perfect example of how not to run a business.

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  5. "Simple solution of course is to file on time and avoid the penalty."

    True, but even doing that does make you immune from having problems with HMRC.

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  6. 13 January 2012 19:29

    I absolutely agree, HMRC is a mess and I know people have massive problems with them. My point is so many people bring a penalty upon themselves and then blame HMRC for their own failure to file or comply. We all rightly criticised Jack, God & co for not taking responsibility for their disgraceful incompetence with GS so it seems rather hypocritical to not take responsibility for your own actions (i.e. the failure to file) and then cry about it.

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  7. Anonymous 12.11 aomewhat misses the point of the article.
    There are numerous reasons why people are late filing, many of which are perfectly understandable, like serious illness for example. It is therefore quite unreasonable that HMRC should take advantage of such circumstances to boost its coffers. We do not live in the perfect world of the contributor where 'simple solutions' prevail. People make mistakes, and most will pay up without 'crying about it'. The point here is that the penalty be proportionate, and not cynically exploited by an organization that is widely regarded as incompetent.

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  8. I suggest people look at the tax tribunal site and see how many HMRC decisions are cancelled due to HMRC incompetence and compare it with the amount of appeals that have simply been dismissed by the judge.

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  9. Ah, serious ilness. The country must have been in the grip of the Black Death for the last 25 years, the number of seriously ill people I've spoken to who have not been able to file one sort or another.

    A bit like the homeless crisis currently raging - at least you might think so,given the amount of debtors, when finally contacted by phone,and when asked where they are living ,reply " I'm not really living anywhere " and refuse to be drawn on the matter.

    And the huge pall of smoke which, should by rights, be blocking out the sun by now . From the thousands of "small fires, in the garage, which destroyed my business records".

    Still, all HMRCs fault. I suppose.

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  10. 01:06

    If it was not for these people with their excuses where would you be working?

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  11. I'm soooooooo grateful for all these lying pieces of shite I deal with on a daily basis. Otherwise , I wouldn't be in a job?

    Twat.

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  12. Taxpayers lies = excuses
    Hmrc lies = Conspiracy to destroy THE ENTIRE WORLD AS WE KNOW IT.

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    Replies
    1. Yes and we're all in it from top to bottom. Seriously if HMRC were trying to 'turn a profit' then they wouldn't bother with these silly little amounts of penalties they'd just charge excessive determinations at the last minute (and other types of penalties which are more difficult to displace) at the first sign of 'disobedience'.

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  13. @Jan 16, 2012 02:22 AM

    That is such a lazy response.

    Never mind HMRC will be fully privatised soon so the excuses that HMRC normally accept without proof at the moment will start requiring a full medical history/other evidence so that the profits of the ConsLabracats chosen leech in the part of HMRC that was once part of the government will be able to gorge itself.

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  14. The relationship that the ConsLabracat government has with private industry is the equivalent of private industries/government being able to give themselves a blow-job in public.

    In other words, great for them, disgusting for anyone else who happens to be watching it happen.

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  15. http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9018258/Three-million-people-facing-100-late-tax-penalty-from-HMRC.html

    Andrew Penman, head of London private client services at accountant PKF said: "HMRC now adopts the sort of approach to tax collection you would expect from a budget airline and charges for everything that is late.

    "It is no longer possible to avoid a late filing penalty simply by paying all the tax that is due for 2010/11 by 31 January and then sending your tax return in later. From this January onwards, the fixed £100 penalty will be charged on filing a late return regardless of the amount of tax under or overpaid. "The longer you delay, the worse it gets."

    ^^^^^

    *That* is what HMRC is up against.

    His quote should be translated as "We used to be able to target those who had a large repayment by guaranteeing interest on the repayment by deliberately filing the return late. We can no longer do so, now we have to come up with some other loophole or spend more time making up ill-thought out excuses based on technicalities rather than genuine reasons on behalf of our clients"

    Boo hoo pass the hanky......

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  16. For once I somewhat agree with Anon @11.39 - Who I assume is the usual late-taxpayer-hater that posts on here.

    It shouldn't be used like that. Whether that be that PKF are finding it difficult to get the correct paperwork from their clients or whether they are deliberately trying to work the system for interest is a different discussion.

    However I still have an issue with a system that only notifies me after it has assessed 4 late fees. Whatever your system that's a bad idea.

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    1. @Ev

      I agree, the system for issuing penalties shouldn't work like that. I know if I was an employer I'd be mighty pissed off at suddenly being notified of £400 in late penalties, especially as the deadline is so short and it relies on correct recording of receipt by HMRC before the first of such penalties had been incurred.

      I'm not the usual late-taxpayer hater that posts on here, I know there is someone here who hasn't grasped that employer penalties are intrinsically unfair to a small business as it is basically penalising them for not administering PAYE in good time, a task that HMRC should be thankful for considering employment income and the different tax legislation that can be applied to it is vast.

      With self assessment though it's slightly different. People are asked to report their own income. Now, call me simple, but i like to know where my money comes and goes even without the added complexity of filling out a return. It's common sense that people record details of their own income and outgoings.

      The time frame for submitting the income tax returns is a lot longer. If PKF are finding it difficult to get the correct paperwork from their clients then you wonder why these people would employ an accountant in the first place. If they fail to get their own affairs in order it won't be the accountant who faces the penalty (although if the accountant deliberately incurs a penalty on behalf of his client you can't imagine he would be in the business very long). Accountants aren't magicians. If someone employs an architect to design a building they wouldn't expect to be able to leave the architect to come up with the entire concept from start to finish we're not living in ancient greece.

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    2. WOT? Not sure I understand this last sentence..."If someone employs an architect to design a building they wouldn't expect to be able to leave the architect to come up with the entire concept from start to finish"

      Clearly never worked with an architect or understood what 'concept' means.

      HOWEVER I have ben self-employed and worked for Govt Dpts and Ministries at the highest level... it is always your (my) fault... example... (and only an example) two year contract with say DWP, (£100k fees), panic delivery time, worked started to meet deadline... Senior DWP Director retires, nobody at DWP prepared to take project responsibility... 'on hold' takes six months before new Director appointed... another three months before they cancel the contract... can invoice us now for work completed (not the £100k) and we take three months to pay... put that in your accounts and tax return... with associated expenses when it is in two tax years...

      sometimes not everything is straight forward as some of you think... some of us don't work April to April nor 9 to 5 and sometimes we have to service our clients and as clients do what they want.

      (AND if you didn't understand it say £100k contract, ONLY when the contract is cancelled do we know it's no longer £100k... and what fees we can recover)... its a nightmare out here in the real world!

      Remeber when Govt said you could charge interets at something like 4% over base rate... and Govt Depts would pay in 28 days... more mickey mouse promises.

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    3. In the real world most people would expect to be able to communicate in coherent sentences, if they expect to get £100k contracts.

      Re: the Architect comparison.

      If I said to someone "I'm going to give you £100k to design a building" without giving any specification as to what the building was, what style it should be in, the purpose of the building etc, then they shouldn't be surprised when the architect comes back with something like the following: http://www.guardian.co.uk/uk/2010/mar/31/anish-kapoor-artwork-tower-london

      So, if I was an individual who employed an accountant to sort my taxes for me without giving them any info (accounts might come in handy) then I can't exactly blame the accountant if my return is late or turns out to be wrong!

      I therefore face my own £100 penalty.

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  17. I work in construction and had been working away at the time they had sent out those letters, hadn't seen them or heard anything about this new penalty system.

    I already paid tax every week on the CIS scheme and usually it's them who owe me a refund because of overpaid tax..

    I submitted last years and this years tax return in may to find out I owe them £1000 in tax penalties. I'm angry that they can justify this sort of penalty, it's a complete rip off when i've already paid tax in the first place, the hmrc are scammers. Does anybody know if financial odbusmen can do anything against them?

    Andy C

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