VAT on goods for staff, Challenging penalties, Budget forecast

Last week we considered the VAT implications of providing free goods to employees and the circumstances in which HMRC's behaviour creates a reasonable excuse for taxpayers. We also polished our crystal ball to look ahead to the next Budget on 8 July 2015. Certain clients should be advised to take action before that date.

Challenging penalties

The HMRC machine spits out automatic penalties when tax returns or tax payments are delivered late. Unless the taxpayer can prove he has a reasonable excuse, HMRC won't cancel the penalties. But what if HMRC itself is the cause of the reasonable excuse?  

 

HMRC are reluctant to admit that they can be in the wrong or that their “helpline” has misled the taxpayer. The Tax Tribunals tend to take a more sympathetic view of the taxpayer's position, as illustrated in two recent cases: Joanna Porter and John Crangle, which were both heard by the same judge: Peter Sheppard.

 

When trying to file her tax return Ms Porter received the message “access denied” from   the HMRC's online filing system. The online helpdesk told her the problem was an IT error and was not her fault. They eventually sent her with a new ID number which she was able to use to submit her return. However, HMRC still issued a late filing penalty, and refused to accept her appeal against the penalty. The Tribunal agreed Ms Porter did her best to file her tax return and cancelled the late filing penalty.     

 

Mr Crangle ticked the box on his 2012/13 tax return requesting that tax due of £1442 be collected through his PAYE code for 2014/15. This return was submitted online on 20 December 2013, before the cut-off point for altering the 2014/15 code (30 December 2013) but HMRC ignored that request.

 

Mr Crangle believed the tax due would be coded out until he received a letter from HMRC dated 1 April 2014, which was after the tax due date of 31 January 2014. That letter was apparently promoted by the taxpayer ringing HMRC on 11 March 2014, but HMRC still issued a late payment penalty on 24 April and charged interest. The taxpayer had to appoint a tax agent to sort the mess out.

 

Where your client has suffered shoddy treatment by HMRC and as a result has received penalties, it's worth challenging those penalties at internal review and through to Tribunal. Our personal tax experts can advise you how to do this.

This is an extract from our tax tips newsletter dated 21 May 2015. The newsletter itself contained links to related source material for this story and the other two topical, timely and commercial tax tips. It's clearly written and extremely good value for accountants in general practice. Try it for free by registering here>>>