Why so little care from HMRC for Vulnerable Customers?

We have some vulnerable customers. We take them seriously. So much so that in the last year we have developed a ‘vulnerable customer policy‘, and now all Covertax team members have undergone enhanced DBS checks.

Why bother?

Well our view is that just like you wouldn’t put your friends and relatives in the care of someone who has not been checked, we feel that the same should be expected of professional advisers.
In some of our cases we do develop a close working relationship. We are relied upon. And we wish our clients and their advisers to be sure that they are in safe hands. Hence going that step further.

And what about HMRC?

Whilst the Government seeks to protect vulnerable customers, there is no consistent vulnerable customers policy within HMRC or indeed the Tribunal Service. We know this because we have asked in respect of our own vulnerable customers. And we accept that either the respondents correctly reported a lack of vulnerable customers policy for all their customers, or else were living in ignorance of their policy, which in some respects is worse and would indicate a serious training need within HMRC. Indeed, we feel that there is a serious training need in any event.

HMRC makes no effort in normal circumstances to identify a vulnerable customer, or indeed agent, upon first contact.
The nearest we have to an HMRC policy is some isolated comment in respect of Direct Recovery of Debts (“DRD”), whereby HMRC can help themselves to the contents of the person’s bank account. Our understanding is that this policy arose because of pressure upon the Government to ensure that DRD did not disadvantage vulnerable customers. We have not seen this extended to other vulnerable customers within HMRC’s Debt Management regime, HMRC’s general contact with its “customers” nor within the appeals process either within HMRC or the Tribunal.

Direct Recovery of Debts

As regards DRD, HMRC says “Those who are identified as vulnerable will not be considered for DRD, and will be given alternative support to help them pay the money they owe.” Briefly, this means that HMRC will take the money in any event, but not by raiding the person’s bank account.

From what we have seen, there seems little regard to the challenges vulnerable people face. For example, we have live cases where the vulnerable person has received penalties instead of help – the worst example of this is a dyslexic HMRC customer served complex notices.
HMRC has, however, set out indicators for identifying vulnerable customers, but only in respect of DRD:

Indicator A – a disability or long-term health condition

For example, a disability, mental health condition or learning difficulty that directly impacts on debtors’ ability to communicate with HMRC or to manage their HMRC affairs, meaning they are unable to understand or appreciate their indebtedness. The effects of the disability or condition may be temporary or long-term in nature.

Indicator B – a temporary illness, physical or mental health condition

For example, diagnosed with a serious illness or condition that affects them to such an extent that they are unable to understand or appreciate their indebtedness or to put their HMRC affairs in order.

Indicator C – personal issues

Issue that affect them to such an extent that they could not understand or cope by themselves.

For example:

  • becoming recently widowed
  • a family bereavement
  • being made redundant
  • a serious illness
  • caring issues
  • trauma caused by an assault
  • domestic or financial abuse

These may be issues that affect [the taxpayer] directly or someone close to them (such as an immediate family member).

Indicator D – lower levels of literacy, numeracy and/or education

For example, learning difficulties that mean they are unable to fully understand their indebtedness without advice or support.”


It is our view that both HMRC and the Tribunal’s Service should have a vulnerable customers policy for all aspects of their work. This is something we will campaign for through our various professional bodies, as well as in direct contact with HMRC.
We would encourage other professional firms to follow our lead, both in respect of their own customers, but also in respect of contact with their professional bodies and contact with HMRC.

Steve Botham


The lunatics have taken over the asylum (Fun Boy Three, 1981)

The original remark is attributed to Richard A. Rowland about the founding of United Artists. It is now commonly used to describe a situation in which those in charge are incapable of handling their responsibilities, and should rather be put under scrutiny themselves.

Fun Boy Three sung a protest song about the action of the Government at the time and the song has real echoes today some 36 years later.  But here I am writing about the crazy way in which the UK’s taxation civil penalty regime is now being applied.

In a widely reported VAT case, a business failed to reclaim input tax to which it was entitled on a VAT return and made the claim on a subsequent return.  To be clear, the business was out of pocket for a while, and the taxman was therefore better off.

However, the business failed to follow the VAT voluntary disclosure rules and just reclaimed what it was owed.  HMRC disallowed that claim to input tax, and then applied a penalty because of the careless error of overclaiming input tax on that specific return.

Really!  I’m not making it up.

There is a very good quote about VAT from Lord Justice Sedley in Royal & Sun Alliance (2003): –

“Beyond the everyday world … lies the world of VAT; a kind of fiscal theme park in which factual and legal realities are suspended or inverted.”

But don’t blame VAT, as we’ve now seen our first CIS case where tax is owed to the taxpayer, but upon which penalties running well into five figures have been levied for the administrative errors.

Now, before you get your pen out to write to your local MP, Horrified of Tunbridge Wells, technically HMRC can do this.  They did say they would not when the penalty regime was first introduced, and it was certainly not the intention of the Keith Committee when it considered how to improve VAT compliance all those years ago.  And there lies another tale.

They say that the then Prime Minister, Mrs Thatcher, was horrified by the press coverage reporting the alleged misbehaviour of Customs & Excise VAT officers.  This was doing her Government no good at all, so she asked her civil servants to get “Keith” to sort it out.  And accordingly, they appointed Lord Keith to commit his review, which instead of curbing the powers of Customs & Excise VAT officers, strengthened them.  Word has it that the civil servants appointed the wrong “Keith” – Mrs Thatcher, so they say, wanted her right-hand man Keith Joseph to do the job.  And that is the genesis of the current civil penalty regime for all taxes – a careless error.

So, all this is very interesting (for a tax consultant), but where does it leave us.  Well the first thing to say is to review your compliance procedures as soon as possible.  Get it right. Indeed, that was what Lord Joseph sought from the civil penalty regime – the right tax at the right time.  For example, when dealing with late input tax on VAT returns, we now mark those entries up, check whether they fall below the de minimis limit for adjustment on returns, and if so mark up the entries with “VD” for voluntary disclosure.  If not, we make sure that separate voluntary disclosures are made to reclaim tax to which our clients are entitled.

Crazy?  Maybe Lord Sedley was absolutely right.

And when we are faced with a penalty case on behalf of a client, after establishing the facts (which sometimes help us, but are always needed), we are left with taking a legalistic approach: –

  • Did HMRC properly consider whether the taxpayer had taken reasonable care? 
  • What evidence is there of reasonable care having been taken (effectively, a “compliance audit”?).
  • Did the taxpayer believe that his or her advisers knew what they were doing? 
  • Does the taxpayer have any “special knowledge”, meaning a higher threshold to show reasonable care?  And has HMRC used an arbitrary threshold?
  • Has HMRC applied discretion where the law provides for it?
  • Are the penalties capable of being suspended? 
  • Why wasn’t suspension offered by HMRC? 
  • And even whether the assessment as to penalty has been properly made and in time?

In the meantime, I now need to start ferreting my way through Hansard to establish Parliament’s intention.

Now there is an asylum!

Steve Botham

Does my bum look big in this?

I am persistently asked two questions about Brexit by clients and advisers based outside the UK:

  • what is going to happen and
  • why did the UK electorate decide to leave the EU?

These have become the impossible questions.  To my mind they stand alongside that question no husband can ever answer – “Does my bum look big in this?”

Interestingly understanding the reasons why the UK voted to leave the EU could be the key to getting a settlement.  There is a problem though.

The question on the referendum paper was “Should the United Kingdom remain a member of the European Union?” or “A ddylai’r Deyrnas Unedig ddal i fod yn aelod o’r Undeb Ewropeaidd?” in Welsh.  That’s it.  That is the sum total of the question and the answer was either “Yes” or “No”.  Not “Yes, because…” or “No, because….”, just “Yes” or “No”.  So, despite the claims of many politicians and pundits, no-one actually knows why the UK electorate were in favour of leaving.  Indeed, according to opinion pollsters, the UK electorate is similarly split right now.  Still.

Of course, some reliance has been placed on pollsters as to why people voted to leave.  However, given their recent track record (including on the Brexit vote itself) I think anything they say must be taken with a pinch of salt.  At this stage I would expect UK readers to start on the usual rants from each side of the divide (and it is a divide) with comments such as the people were not told the truth or the Remainers didn’t make their case, or experts can’t be trusted.  But that really does not help us, bar being able to confirm that there is absolutely no clarity as to the reasons, and less as to how these are being addressed by the Brexit process.

I think that there is some common consensus that the main reason for the UK voting the way it did was immigration.  And indeed, that is a live issue in many other EU member states, although perhaps not so much because of the movement of EU citizens to those countries.  From what I understand the arguments elsewhere in the EU are similar: –

  • “They’re taking our jobs and driving down wages”;
  • “They’re living off our benefits” (not quite sure how 1 and 2 interact except in the case of workers paid pitifully low wages);
  • “They’re filling up our schools”. Well there is no doubt the UK education system is under pressure, but one wonders whether it is purely down to immigration; and
  • “They’re using up resources in the health service making it difficult for us to get treatment.“ There is no doubt that the NHS is under pressure in the UK, but little evidence that it is to any major extend due to immigration.

Perceptions matter, and these seem to have been the drivers as regards immigration.  As the UK is now finding out, taking the NHS as an example, the NHS is very reliant on staff from other member states.  There is now net migration from the UK of NHS staff from the EU, and fewer job applicants from other EU member states.  Migrants to the UK tend to be younger and have less chronic illnesses, but it is fair to say they tend to bear children and thus take up resources in that respect.  But the real pressure on the NHS seems to come from older patients, especially when it comes to “bed blocking”.

Close behind, certainly as far as the politicians are concerned is “taking back control”.  Now I do accept that readers from elsewhere in the EU may find this rather incredible, not least because of the special deals available to the UK from the EU. However, once again, this seems to be an issue echoed in other member states, so it is not just a British issue.  Whether it is fair or not is neither here nor there.  What is relevant is the perception.

And perhaps next, is the view that the EU costs the UK “too much”.  Whilst the politicians leading this argument were not very good at their sums (promising £350m a week for the NHS from the savings achieved by leaving the EU), the net cost to the UK is estimated as £200m a week. That does not take into account the new costs arising from protecting our borders, new tariff barriers to be passed, new agencies that will have to been put in place and the administrative cost to commerce in the UK of leaving.  Now we all know that when the UK leaves the EU, someone else will have to find this money or else EU budgets will have to be cut.  And it is now too late to clarify what other benefits the UK gets for the sum of approximately £10bn a year (about the cost of an aircraft carrier without the aircraft).  Certainly, a big benefit is being a member of the Single Market as well as the Customs Union, but in the UK those terms have become as bad news as “Brussels” or “European Parliament”.  A dwindling assertion is that the UK will be better off outside both the Single Market and the Customs Union – it is starting to suffer like the death of a thousand cuts principally as jobs are lost from the UK and relocated in other member states.  However, it is still an assertion that many politicians from across the board, as well as many of the electorate, cling to.

And this last point does also have some echoes politically in Germany and France in particular – the big budget contributors.

And therefore, I say that the Brexit solution requires an understanding by the negotiators as to why the UK is leaving.  That may help colour their positions so that they can get closer to a solution.  And it is also why I argue that the Brexit solution is almost certainly of as much relevance to other member states, principally France and Germany, as it does to the UK.  There are aspects of the EU that do need to be addressed.  Whether Brexit is the right way of bringing the issues to the boil is another question.  And here I must lay some blame at the feet of the Commission and of other member states.

Prior to the referendum, Mr Cameron, who was then the UK Prime Minister (and whose political career was ruined by the Brexit decision) met with the EU in the Spring of 2016, before the referendum, and sought reform.  Put more bluntly he sought help so that he could set the referendum in the best possible light.  He brought sovereignty, migration, welfare benefits, economic governance and competitiveness as issues where reform was needed.  He got no meaningful help.  Indeed, he returned to the UK with an offer which the UK Public and Parliament saw as no different to the assurances Mr Chamberlain was given by Germany in 1939 – I do appreciate that some readers may find that offensive, but that is the reality as to how this was seen in the UK.  That was the perception gained by the UK electorate and Parliament.  And that was to then, in my opinion, play its part in the result of the referendum.  Many British people felt let down by the EU at that crucial stage.  Yet what Mr Cameron was seeking was no different to issues faced by other member states.  And as we now know, it seems that these were important issues for the UK electorate.

So, coming back to the first question – what is going to happen or where are we likely to end up with Brexit?  Well, if you were to put yourself in the shoes of the UK negotiators, you will see that they very much have their backs against the wall.  They really need some help from the EU here.  I do not believe we are talking about flexibility and creativity, as we are told by the UK Government.  I think that the other member states need to take stock, address the issues, many of which are common to other major member states, and then address reform.  The chance of achieving reform within the Brexit timetable is pitifully low.  There may be more chance of doing so within a reasonable transitional period.  And this would not be giving in to the British.  After all, the UK is now pretty certain to leave.  However, that may enable the UK to leave with a deal as opposed to crashing out which is of much good to the remaining member states as it is to the UK.

However, you may wish to ask yourself how likely it is that reform on key issues affecting mainly the larger member states can be achieved even within say four or five years?   And that is why, right now Covertax is preparing for the UK crashing out with no deal, but hoping that common sense will prevail.

And taxation.  Well taxation follows trade.  And commerce much depends on the trading terms between the counties.  And if you wish to be even more narrow, the EU is moving forward with modernising VAT and we don’t even know whether the UK will move forward with the same reforms.  There is a chance that it will not.  That then means a risk of different basic VAT systems in the UK and in the rest of the EU, leading to uncertainty as well as added cost for commerce.

So right now, the Brexit bum does look big in this.  Indeed, it may be better off trying to wear a tent.