How HMRC’s pandemic leniency sparked a tax enquiry for one unlucky self-assessor

For contractors and others, a brand new First-Tier Tax tribunal judgment sheds mild on the complexities of UK tax regulation and the obligations of each taxpayers and HMRC – even when there’s a pandemic on, writes Naseerah Mussa, a guide at tax, VAT and employment regulation agency Chartergates.

Particularly, in Josephine Mary Hayes v Income & Customs, the validity of an enquiry into Hayes’ 2019/20 tax return was scrutinised. Additionally scrutinised was her utility for closure of the HMRC enquiry, and a request by her for disclosure concerning the origin of the HMRC investigation.

What’s Hayes v HMRC about?

The crux of the matter revolved round whether or not HMRC’s enquiry into Hayes’ tax return was initiated inside the statutory closing dates, and the extent to which HMRC may request info to confirm the accuracy of her reported revenue and bills. 

Hayes, who represented herself, argued that HMRC’s enquiry was invalid as a consequence of an alleged extension of the submitting deadline offered in HMRC’s covid-related e-mail communications, which she interpreted as granting further time to file her return. 

What HMRC’s emails acknowledged…

A kind of emails acknowledged the next (N.B. the emboldened phrases appeared in daring within the e-mail as properly):

“Earlier this week, HMRC introduced that clients won’t obtain a late submitting penalty for finishing their 2019-20 tax return after 31 January, so long as they file on-line by 28 February.

“We’re nonetheless encouraging clients to file by 31 January, if they’ll, as this will assist to funds and plan on your January fee. You may nonetheless have to pay your Self Evaluation tax invoice by 31 January.”

A really comparable HMRC e-mail, obtained by Hayes on February twenty third 2021 – 5 days earlier than she submitted her tax return, acknowledged:

“You’ll not obtain a late submitting penalty so long as you file on-line by 28 February.

“Curiosity has been charged from 1 February on any excellent liabilities. You’ll not be charged a 5% late fee penalty in case you pay your tax or make a Time to Pay association by 1 April.”

Hayes’ e-mail argument wasn’t accepted, though HMRC’s wording was not ‘clear’

Nonetheless, Decide McGregor dismissed Hayes’ argument that that the aim of the emails was to provide an additional month to file the return (though the choose mentioned the HMRC emails providing a concession as a result of pandemic weren’t “clear” and never “unambiguous”).

The choose concluded that the HMRC emails merely suspended penalties for late submitting as a result of pandemic, however didn’t lengthen the statutory deadline.

Additional objections

Additional although, Hayes objected to the breadth of data that HMRC requested, arguing that it encroached upon her privateness and was disproportionate to the character of her revenue as a barrister. 

Regardless of her objections, Decide McGregor upheld HMRC’s proper to request info to confirm tax returns, outlining that the enquiry course of permits taxpayers to clarify their positions and that the burden of proof lies with the taxpayer to justify their reported figures.

Along with her utility for closure of the enquiry, Hayes sought disclosure of any third-party communications that will have prompted HMRC’s enquiry.

On-line harassment

The origin of this request is that Hayes had, over the identical time interval, been engaged in a dispute that has led to litigation concerning on-line harassment that she claims she had been topic to. The date from HMRC’s inside methods on which she was chosen for an enquiry coincides with the interval throughout which complaints had been made about her to varied our bodies, together with her chambers and political occasion. Nonetheless, this request was declined by the choose – citing HMRC’s obligation of confidentiality and the dearth of relevance to the tax tribunal proceedings. 

One important facet influencing the case was the impression of the pandemic. 

HMRC leniency associated to (solely) penalties

HMRC’s e-mail communications to taxpayers, together with Hayes, mirrored the unprecedented circumstances of the pandemic, providing leniency in penalties for late submitting (normally punishable with a £100 computerized penalty) whereas sustaining the unique self-assessment submitting and fee deadline of January thirty first. 

This distinction underscores the separate obligations related to self-assessment submitting and fee, as failure to fulfill the deadlines may properly set off a subsequent enquiry from HMRC, no matter any extensions granted for submitting. 

Covid challenged each taxpayer and taxman

Due to this fact, whereas taxpayers might have been relieved of sure penalties through the coronavirus pandemic, the necessity for well timed tax funds to the Income remained paramount. This highlights the challenges that each taxpayers and HMRC alike confronted throughout a time of worldwide disaster. 

So whereas HMRC demonstrated flexibility in response to the financial hardships caused by the pandemic, it additionally maintained an obligation to uphold compliance and examine potential discrepancies in tax returns.

In the end, in Hayes v HMRC, the choose dominated in favour of the tax authority, discovering that its enquiry was validly opened — and that there have been affordable grounds to maintain the enquiry open as a consequence of Hayes’ failure to offer requested info. 

What does Hayes v HMRC imply for contractors and different self-assessors?

The choice right here underscores the significance of compliance with self-assessment returns and the intensive powers of HMRC to research a person’s tax affairs. 

As well as, the case highlights the intricacies of tax regulation and the necessity for taxpayers to diligently fulfil their tax obligations, whereas additionally underscoring the authority of HMRC to conduct enquiries to make sure tax compliance. 

As contractors navigate the complexities of the UK tax system, circumstances like Hayes function reminders of the authorized rules at play and the implications of non-compliance, particularly within the context of worldwide occasions and difficult occasions such because the covid-19 pandemic.