Limited company boss avoids big tax penalty after ‘wrong and very misleading’ advice from HMRC
A limited company worker who filed his personal tax return late has mostly quashed £2,600 in HMRC penalties, after the taxman gave him “quite wrong and very misleading” advice.
Oliver Hampel, director of Progressive Ltd, rang HMRC in March 2017 to ask if his just-filed company tax return let him off from filing a personal return and wrongly, a tax official said that it did.
Although he should have self-assessed personally by January 31st, Hampel repeatedly asked on the March call if data in his company return was “automatically” fed into his personal return.
And he was told “that’s right” -- twice, by the blundering HMRC operative.
'Wrong and misleading'
“This comment by the HMRC operative is very important because it is quite wrong and very misleading,” said FTT judge Barbara Mosedale, who went on to reduce Hampel’s penalty to £500.
“The operative took no steps to correct the misunderstanding which should have been apparent to him/her.”
Judge Mosedale continued: “It is often said that ignorance of the law is no excuse; however, that is not the case where the ignorance arises from misinformation provided by the very government body which imposes the obligation, in this case HMRC.”
'Not an easy defence for contractors to make'
But a warning was issued last night via ContractorUK to any contractor who intends to try to overturn HMRC penalties by arguing they only arose due to shoddy advice from the Revenue.
“I don’t think contractors should view this as an easy defence to late filing and penalties,” cautioned chartered accountant Helen Christopher.
“HMRC is unlikely to readily accept ‘but I was given wrong and misleading advice by your operative.’ And so any taxpayer would have to think very carefully how it could be proved.”
In Hampel’s case at the First-Tier Tribunal (FTT), the exchanges between the taxpayer and the HMRC operative were put beyond doubt thanks to a transcript of the March phone call.
'Anxious to comply'
On top of showing Hampel as “anxious to comply,” the transcript reveals he was further ill-advised (by the same tax official) to put his extra income as a delivery driver in his company return.
Hampel hung up, only to later receive HMRC penalty letters for his personal tax return becoming more than six months late, which “triggered” him to call the Revenue back.
Finally “put right” by a new HMRC phone operator in October 2017, who told the taxpayer his 2015/16 personal return was still outstanding, Hampel filed it that very day.
'Only a few escape'
Again, the transcript helped the taxpayer (“I thought I did when I’d done my business account”), but again, advisers don’t recommend relying on Hampel’s experience as a defence.
“Only a few taxpayers who don’t properly provide a tax return to HMRC will escape a penalty nowadays,” warns tax adviser Carolyn Walsh, who used to work at the Revenue.
“That’s partly because HMRC has laid out all the information and guidance that most taxpayers need to comply with their requirements [on .gov], such as filing on time.”
Clearly then the exception to the rule, wrongly-advised Hampel was found by the FTT to have a ‘reasonable excuse’ for not filing his personal tax return between March and October.
The same reasoning – the HMRC’s operative “misinformation” – was deemed by the FTT as a ‘special circumstance’, affording both his daily penalties and six month penalties to be waived.
And the daily penalties were quashed on another basis, as HMRC failed to prove that a correct date penalties accrue from was in reminder letters sent to Hampel, adds the judgment.
To judge Mosedale, this lack of evidence must have served to weaken HMRC’s “normally robust stance” that “ignorance is no defence”, reflects Ms Christopher, operations director at Orange Genie.
But Hampel failed to convince the judge that he filed late due to HMRC IT issues, and heard that his belief he need not file as he was employed in the same year was not a ‘reasonable excuse.’
Chartergates, a law firm, further observes that Hampel was let off the severity of the HMRC fines however, as the tribunal ruled that the sums were disproportionate to his income (“unfair”).
'Understand the distinction'
Yet Orange Genie’s Ms Christopher believes it is clear that generally-speaking, the Revenue believes company directors should take the time to understand what is required of them.
“His case highlights the need for company directors to understand the distinction between themselves and their company,” she said of Hampel, who once used an accountant but had stopped doing so because his company’s business had “run down.”
“And it reminds limited company directors not to leave things to the last-minute… and better still, file accurate returns [personal or corporate], with the help of a professional tax adviser.”
Tax advisory CWC Accounting Solutions, which is run by Ms Walsh who today writes about the case exclusively for ContractorUK, agrees. But to those who don’t want such professional accounting help or can’t afford it, she advised:
“Remember, the only fail-safe way to avoid an HMRC penalty is to do absolutely everything right, both with and on your returns, and follow all the written guidance available on HMRC .gov.”