Tax avoider dodges £650,000 in appeal against HMRC

HM Revenue & Customs’ disastrous error with dates on a tax enquiry led to a taxpayer who avoided £653,000 of tax winning an appeal against them.

A tribunal ruled that HMRC’s mistake in describing a tax year a day after the actual date, “ending 6 April 2009”, was big enough to invalidate an enquiry notice. HMRC can usually rely on a provision in tax law to put right minor mistakes, but the tribunal said conditions for its application were not met.

HMRC had stated an intention “to enquire into a tax return for a year which did not exist” said the tribunal judge, Jane Bailey.

The case involved a taxpayer who took part in a tax avoidance scheme in the year to April 2009. HMRC wrote to him in 2011 to say his return was under inquiry, in a letter that used the disputed date.

The taxpayer argued the date blunder was fatal to HMRC’s case, even though there could be no reasonable doubt as to which year was intended.

HMRC argued that it was clear to the taxpayer which return was under inquiry and also said the date “was only one day out, it did not mention the wrong year”.

As the conditions for HMRC’s application to amend their mistakes were not met, the taxpayer is set to pay £653,000 less than the amount claimed by HMRC if it had succeeded in proving the tax avoidance was ineffective.

HMRC said: “We are disappointed with the tribunal’s decision and are considering whether to appeal. HMRC wins around 80 per cent of avoidance cases that are taken to litigation by the taxpayer and many more settle with us before reaching that stage.

“We protected over £1bn in April this year alone. We tackle avoidance wherever we see it and litigate where necessary to ensure schemes are defeated and the tax due is paid.”

Head of Tax at Smith & Williamson, Tina Riches, said it was an unusual case but that there had been other cases in which inquiries had been invalidated because they had missed a deadline or been sent to the wrong address.

She said errors of this sort were uncommon, but added: “In a case like this when the amount was significant you might have thought they [HMRC] would have got the date right.”

She said one lesson for taxpayers was to check details of this sort. “HMRC has to play by the rules. It is important that taxpayers know their rights.”

This case shows that errors can cut both ways — providing weapons for taxpayers as well as HMRC.