My part in David and Goliath battle

I’ve dealt with HMRC for decades – but this is the worst it’s ever been

I‘It was a great victory against the odds but many businesses succumbed to the pressure and settled’

t is a well-known saying that civil servants advise but ministers decide. However, as far as the tax office is concerned, ministers seem to be steadily losing control of their own department. If the correspondence Telegraph readers have shared with me is anything to go by, it appears that over time HMRC is becoming a more officious and less caring organisation.

It is charged with collecting the taxes due in law that provide for our vital public services, but there does seem to have been a shift in the way this is being carried out.

It may be nostalgia on my part but dealing with the Inland Revenue, as it was before 2005 when it was merged with Customs and Exercise, was a reasonably pleasant experience. We had local tax offices where I could take my clients to meet the tax inspector and have a civilised debate on the relevant issues. We understood and accepted our respective positions and common sense prevailed. I had a number of occasions where a tax inspector was prepared to accept a position as being fair and reasonable, while knowing that at a purely technical level it could have yielded more tax. Its guidance was to treat customers fairly and that is what happened the majority of the time.

There was even an entry in the official tax manual suggesting that in appropriate circumstances a taxpayer who had been wronged should be sent a bouquet of flowers. Indeed, figures obtained from this newspaper previously showed the tax office spent thousands on apologies by way of flowers before this form of making good was scrapped. Since then though things have changed.

Now, I am inundated with messages from tax practitioners concerned at the way their clients have been treated. One said: “HMRC have lost their mojo. You can’t talk to them and they use their unlimited powers and unlimited cost resources to force their pre- determined view on taxpayers, even when they know it is wrong.”

I have been sent several examples of cases where businesses have complied fully with the relevant rules, but where HMRC officers have operated in ways that have damaged the businesses even though the courts have ultimately supported the taxpayer.

About 20 years ago I had a call from a Telegraph journalist asking me to speak to Geoff Jones. He and his wife owned a small company called Arctic Systems. He had been pursued by HMRC under IR35 rules which govern the tax status of the self- employed. They won the case, but despite the court ruling, HMRC was not satisfied.

It attempted to pursue the couple, along with around 100 or so other selfemployed workers, for some £40,000 in disputed tax under separate, older and very complex settlement legislation.

Mr Jones explained that he could not afford to pay the tax nor to fight the case. It resulted in a grass-roots campaign and a David and Goliath battle to have the case dropped. Thankfully, with the help of colleagues, enormous support from the Professional Contractors Group and Anne Redston (now a judge), Geoff and Diana Jones prevailed, winning unanimously at the House of Lords in a test case. It was a great victory for them against the odds. However, by then many small businesses in a similar position had succumbed to the pressure and settled. I was pleased to provide moral support through the Telegraph which I know they appreciated. I still have the Christmas card they sent me.

About 10 years ago one of my wealthier clients was informed that his tax return was incomplete. We carried out an extensive review but found nothing. It turned out that the government had done a deal with the Swiss authorities which provided HMRC with details of Swiss bank accounts for UK citizens and this had triggered the inquiry.

My client had a Swiss account for historic reasons but it contained little, generated no interest and therefore did not provide anything to be reported. When I asked the inspector if he was aware of this, he replied that the head office had simply issued a blanket instruction to open investigations on those on their list. They had not bothered to confirm whether or not the accounts were interest bearing. I shudder to think how much cost and grief this unnecessarily generated for so many taxpayers.

I was surprised some time ago when the finance director of one of my larger clients was told he faced a criminal prosecution for making an innocent mistake on a single sales invoice.

Technically he had submitted an incorrect VAT return. It was the inadvertent error of a young bookkeeper, who had filed the record a few days late. It automatically corrected itself the next VAT quarter, so by year end the correct VAT was paid. Nevertheless, when it was spotted at a routine visit by HMRC he was charged for having signed an incorrect return. He wanted to prove his innocence in court but the directors of the parent company were not prepared to take the risk and the company agreed to pay a large penalty to settle the case. Some months later I mentioned this to a minister over lunch. Before becoming an MP he had run his own business and confessed that they often dropped an invoice into the following VAT period when they were short of cash.

I don’t want to imply that all was well before 2005. If anyone has doubts about that I would recommend reading a book by John Laughland called Octav Botnar – A Life. It records the experiences of one of our greatest philanthropists and for many the saviour of the British engineering industry. It includes in detail how he was pursued by the Inland Revenue and ultimately denied the opportunity to clear his name.

Dealing with HMRC is now more difficult than I can ever recall.