We want to share a thought-provoking situation that we are dealing with, where HMRC, we might suggest, make lives worse for the victims of crime.

Not one of our clients, but in many ways similar, the story hit The Times last month. Their reported case considered a taxpayer who had been the victim of crime following submission of an incorrect tax return by an Agent who had retained the corresponding (incorrect) refund but where HMRC pursued the taxpayer, and not the Agent, for recovery of the overpaid repayment. The article can be found here

The reason for sharing this in our Tax Shot this month? We have a group of 10 clients who have experienced similar fraudulent behaviour by their Agent, and who are also being relentlessly, we say unfairly, pursued by HMRC despite our clients being victims.

What happened?

In each of our clients’ cases, they were introduced to an Agent, whose details we will, of course, not divulge at this time, and whose business is now, perhaps unsurprisingly, going through a liquidation process.

Our clients, all modest earning PAYE employees and typically unrepresented, were advised that they would be eligible to receive repayments based on their circumstances. This was something not entirely out of the ordinary for them, as they would normally receive repayments due to the industry they work in and the way in which their PAYE was taken.

An agreement was reached between our clients and the Agent which meant that the Agent would be entitled to a % of any apparently overpaid tax recovered. SA returns were then submitted by their new Agent, and completed so that any overpayments issued by HMRC were first sent to the bank account of the Agent, who would then on-send the overpaid amount, less the % agreed, to our clients.

What our clients were wholly unaware of, however, was that the Agent was additionally making entirely fictitious claims for investments made for EIS relief through each client’s SA return. No such EIS investment has been made by any client and nor did the claims have anything to do with their circumstances.

These (increased) repayments were accordingly paid to the Agent by HMRC as part of their “process now, check later” approach, who then passed a % of the repayment to the clients, keeping the rest.

HMRC subsequently, and understandably, opened enquiries into our clients’ tax returns under Section 9a TMA 1970, and issued closure notices for the full amount of tax that had been overpaid. However, this was in spite of the Agent having received and retained, by far, the largest % of this repaid amount. Until the clients responded to their enquiries, HMRC were completely unaware of this aspect.

In most of these cases, HMRC professed “sympathy” to our clients’ situation, but still, relentlessly, pursued the full amount. Each and every one of our clients, prior to our instruction, had offered to repay to HMRC the amount that they had from their Agent as repayment, and to work with HMRC to support investigation of and recovery from the Agent of the amount he had retained. The clients had asked HMRC to suspend action against them, to allow that Agent focussed action to happen. In all cases, HMRC refused.

So what can be done?

We should remember that these clients are, we say, victims of crime. HMRC are typically asking them for repayment of c£25k to £30k when, in most cases, the clients received only c£3k to £5k “repaid” to them by their Agent. The gross value of amounts being sought by HMRC from this group is approaching £1/2m, with interest added.

HMRC are currently being disappointingly, but unsurprisingly, aggressive in their defence of these assessments, all of which are now listed by us at the First Tier Tribunal.

HMRC have applied for the appeals to be struck out of the Tribunal process claiming that Tribunal has no jurisdiction to hear the cases, and have engaged Counsel to assist them in these efforts. We view this as overwhelmingly heavy handed for victims of a crime, and subjects our clients to further unnecessary costs.

We say, HMRC have an equal duty of care to their customers, our clients, and there should be a sensitive, sensible and managed approach to these cases. Sadly and so far, that has fallen on deaf ears at HMRC.

Additionally, HMRC have wide ranging powers to exercise their “discretion” in suitable cases to either write off the tax sought or to suspend it pending other action. We have suggested that these cases are very deserving of that discretion, however have refused to engage with exercising any discretion. Instead they are pursuing the victims of crime, rather than the perpetrators of the fraud.

From an organisation that refers to all taxpayers as their “customers”, we see this as incredibly poor consumer service or protection afforded to those customers. After all, HMRC seem to fail to see that they are not the only victims here.

HMRC’s approach to taxpayers who have been a victim of crime has been subject to discussion with HMRC’s own CEO, Jim Harra, at the Public Accounts Committee which took place last month. Mr Harra advised that HMRC had operated a “process now, check later” policy which meant that fraudulent Agents were able to continue in this manner without consequence, and it was always the victims that were pursued.

From our discussions with other advisors who have clients in similar unfortunate circumstances, it has come to our attention that is a considerably wider problem than originally thought. As a result, we are currently testing whether a Judicial Review into HMRC’s approach might be appropriate and, to that end, various Counsel have expressed an interest in considering undertaking such significant proceedings pro bono, provided there is a “critical mass” of an Appellant base.