Judge accuses HMRC of making up figures to scare people


The UK tax authority has been accused of making up figures to terrorise people by a judge who said a six-figure bill had been “plucked from the air” to frighten a taxpayer receiving incapacity benefit.

Experts warned the case was part of a trend of HM Revenue & Customs making mistakes and failing to properly check demands issued to taxpayers.

In a judgment published last month, Judge Geraint Jones QC ruled in favour of the taxpayer who had appealed against a tax bill and penalties of £342,000.

The First Tier Tribunal heard that in 2018 HMRC had issued income tax assessments worth £272,840 against Sebastian Cussens, based on its belief that he was a sole trader buying and selling cheap second-hand cars. HMRC alleged Mr Cussens had failed to declare trading profits between 2005 and 2016 and also issued him with penalties of £70,102.

However, the tribunal heard that Mr Cussens, who represented himself with help from his 81-year-old father, had been in receipt of enhanced employment and support allowance. This benefit is paid to people unfit to work because of physical or mental impairments. The judgment added that, based on observations at the hearing, the tribunal believed Mr Cussens “lacked the skill, ability and perhaps the understanding to deal with this appeal properly”.

The judge acknowledged that Mr Cussens had failed to co-operate with HMRC and had not mentioned his health condition to them before the hearing.

Nevertheless, the tribunal found fault with the basis on which HMRC calculated the bill issued to Mr Cussens, heavily criticising its assumption that he could have made a 50 per cent net profit margin as “wild, extravagant and unreasonable”. The judgment noted that HMRC’s lawyer was unable to explain how the profit margin had been arrived at.

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“It smacks of being a situation where, because the appellant had been uncooperative and was sticking his head in the sand, the respondents [HMRC] decided to issue assessments almost “in terrorem”, in a bid to persuade the appellant to engage properly in the matters under review,” the judgment said.

“We have seen nothing whatsoever in the documentary evidence to suggest that any thought, consideration or analysis whatsoever was undertaken by either the [HMRC] assessing officer and/or the [HMRC] review officer to decide whether taking a net profit figure of 50 per cent of supposed turnover was or was not a reasonable basis upon which to proceed. We are firmly of the view that figure was simply ‘plucked from the air’.”

Mr Jones, who set aside the tax bill and all the penalties, also criticised HMRC officers for not considering the plausibility of a person, deemed unfit to work on account of their physical or mental impairment, earning tens of thousands of pounds from their own efforts.

“It seems that nobody at HMRC is actually reality checking these cases and asking’ is this a realistic amount?’ [to seek],” said Keith Gordon, a barrister at Temple Tax Chambers. “All they’re seeing is the numbers. It’s as if they are playing a game of Monopoly.”

Mark Taylor, head of tax investigations and dispute resolution at accountancy firm Buzzacott, added that the case showed that the “safety nets” within HMRC were not working and there was a lack of commercial experience at the authority.

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“Somebody of experience in HMRC would have signed off these figures, then a review officer has also signed them off, then it’s gone to HMRC’s solicitors who have said ‘let’s proceed to tribunal’ and no one has detected that this case has fundamental flaws,” he said. “We see too many of these cases to view them as isolated.”

HMRC said in response to the ruling: “We are committed to treating all taxpayers with respect by taking individual circumstances into account. We are carefully considering the judgment.”



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