HMRC publishes tens of thousands of pages of technical guidance online – but can taxpayers really rely on what the information says?
Probably not, according to judges who end up scrutinising the guidance at tax tribunals.
Despite HM Revenue & Customs bragging about winning eight out of 10 cases that go to court, tax inspector decisions based on their manuals are regularly overturned.
In recent weeks, cases where judges have rejected HMRC arguments based on guidance in their manuals include:
HMRC claiming investors in the Seed Enterprise Investment Scheme had to stake a ‘meaningful’ amount to qualify for tax breaks. Judge Amanda Brown at the First Tier Tribunal suggested HMRC misinterpreted the law and was making up rules to suit them. HMRC lost in court.
In another First Tier Tribunal case, HMRC ignored time limits to start a tax inquiry against retirement savers with QROPS offshore pensions. HMRC lost again.
Before the same court again, HMRC lost when the judge decided online guidance relating to a capital gains tax concession was wrong and that the law had been misinterpreted by the tax authority. The tribunal quashed nearly £24,000 worth of penalties and ordered HMRC should recalculate the CGT bill of George and Mary McHugh.
These cases are not exceptional – they all took place within the past eight to 10 weeks and represent run-of-the-mill cases before the First Tier Tribunal.
No force of law
Another notable criticism of HMRC guidance for taxpayers was in a case brought by Singapore’s Panthera QROPS in 2013. The QROPS successfully challenged penalties imposed on clients by the tax authority on the grounds published guidance was unclear.
HMRC withdrew the case in the High Court and launched an amnesty for all QROPS savers who transferred cash into an offshore pension before September 2008.
The key point is HMRC manuals and guidance have no force of law and are open to challenge from taxpayers willing to stake the time and money to battle HMRC in the courts.
The prime source for testing if decisions by HMRC are legal is returning to the statute and checking for any amendments or case law that may have updated the legislation.