(As posted in the comments of Graham Webber’s “Tales from the front line” in Taxation magazine )
“Below is the text of a (now open) letter sent to the Assistant Director of HMRC’s AP Review teams some 2 months ago. It raises many of the issues highlighted above. And I have not received so much as an acknowledgement.
Perhaps HMRC might care to respond publicly?
Representations regarding the accelerated payment notice (“APN”)
I am a Chartered Tax Advisor representing over 2,000 taxpayers who have received APNs, many of whom have made written representations to your office. I wish to address, directly, concerns over the way in which those representations are dealt not only by your office but by all AP teams. My concerns are not with individual officers but with the policies to which they are forced to adhere. I believe they are both unfair and ultra vires.
My concern arises from the following scenario, which has arisen for many taxpayers involved in contractor loan arrangements.
HMRC issues an APN using “estimated figures”. The, unnamed, ‘designated officer’ multiplies the individuals salary by a multiple of 4 or 5. The reasons for the choice of the actual multiple are unclear. What is unquestionable is that HMRC knows the figures to be incorrect.
In these circumstances it is highly questionable that the APN is valid at all. In order for an APN to be valid its content must accord with s220 FA 2014. S220(3) provides that the notice must specify the ‘understated tax’. S220(4)(b) defines the “understated tax” as being (in the case of a notice given by virtue of section 219(4)(b) (cases where the DOTAS requirements are met)), such adjustments were made as are required to counteract what the designated HMRC officer determines, to the best of that officer’s information and belief, as the denied advantage.
APNs issued using salary multiples do not use the “best of that officers information”. To arrive at the understated tax the designated officer should refer to the form P11D submitted by the employer. It is that which is “best of the officers information”. The P60, and applying a random multiplier, cannot be said to be the “best of the officers information” when HMRC are already in possession of the correct figures. But the reviewing officers dismiss those arguments.
Furthermore, and it is this with which I take greatest issue, is what those officers do upon receipt of written representations from taxpayers who provide the correct loan figure, but no supporting evidence. In short those representations are rejected out of hand, most commonly after the expiration of the 90-day representation period, thus meaning that further evidence cannot then be provided. If it is, it is routinely rejected as being received outside the 90-day window. And this is done despite the knowledge that HMRC’s own figures are an estimate calculated using a random multiple of the wrong information (salary).
I believe that in dismissing these representations HMRC is exercising its powers unfairly and unlawfully.
The law places the onus upon the ‘designated officer’ to issue an APN using “the best of that officers information or belief”. It is highly questionable, in the circumstances above, that that duty is being carried out properly. However, in making representations upon receipt of an APN, the law (s222(2) FA 2014) requires only that those representations be made in writing, within 90 days of the notice being given, “objecting to the amount specified in the notice”. Nowhere does the law require the taxpayer to provide evidence to support their assertion. Moreover nor does the HMRC Guidance, last updated on 23 July 2015, suggest that supporting evidence must be provided.
Yet perfectly valid representations are routinely rejected stating that HMRC cannot simply accept the taxpayers (written) word on the correct figure. This despite the taxpayer having complied fully with their statutory requirements and the reviewing officer knowing that HMRC’s figure is itself an estimate. In doing so HMRC is acting inconsistently with its own Charter, which states unequivocally at 1.1 “We’ll presume that you’re telling us the truth, unless we have good reason to think otherwise”. What good reason does HMRC have for believing that taxpayers making written representations against their APN are not telling the truth when providing the correct loan figures? Upon what legal basis are valid representations being rejected?
In circumstances where HMRC issue APNs knowingly using incorrect figures, reject valid representations as to the correct figure and then pursue payment vigorously with threats of bailiff visits I am often drawn to the peculiar case of Rex v Puddle in AP Herbert’s Uncommon Law, 1935. Perhaps individual ‘designated officers’ and those reviewing valid representations, might bear that in mind when exercising the powers given to them by Parliament in apparent contravention of the law and HMRC’s own charter?
In light of my concerns I would be grateful if you would respond, in writing, setting out:
· The legal basis for HMRC exercising its powers in rejecting valid representations in circumstances outlined above,
· Why HMRC is not complying with a fundamental tenant of its own Charter, and
· Why HMRC believes that it is discharging its duties fairly and in accordance with the law.
I look forward to receiving your response.