CVC advises many charities. Our clients include a number who offer support to vulnerable people and those with disabilities. The recent decision in Sandpiper Car Hire Limited saw the Tribunal criticise HMRC’s approach to dealing with disabled people.
The facts can be summarised as follows:
- Sandpiper appealed the decision of HMRC to issue VAT default surcharge liability notices in respect of VAT accounting periods 01/11 to 10/15. The surcharges totalled £9,643.81.
- Sandpiper believed it had a reasonable excuse for its defaults and failure to pay VAT owed to HMRC by due dates.
- Sandpiper evidenced the following facts in support of its position.
- The 70 year old sole director of the business has suffered with Meniere’s disease for 20 years and finds it extremely difficult to hear.
- The director was diagnosed with cancer. When removing a tumour the surgeon damaged a major nerve to the director’s spine which required a number of further operations.
- Due to a combination of significant pain and severe mobility issues the director was prone to lengthy, frequent and unpredictable absences from the business. Further surgery nearly resulted in the director’s death.
- Managers employed to run the business were unreliable. One set up a competitor business whilst employed by Sandpiper. Another defrauded the business out of thousands of pounds. The offence was reported to the Fraud Squad.
- VAT payments made by the business to HMRC had been credited to the company’s PAYE account by HMRC in error.
- The director wrote to HMRC numerous times advising he was deaf and unable to communicate via the phone. HMRC responded each time with a letter giving a contact telephone number to call to discuss the matter.
- The director’s wife called the number given by HMRC; however, this was unobtainable. She traced another telephone number but HMRC refused to discuss the matter with her because she was not an officer of the company.
- A letter to HMRC from the director dated 20 April 2017 was treated as a complaint by HMRC. On 12 May 2017 HMRC’s Complaints Team wrote to the director giving a telephone number to call. HMRC also denied that it “had not considered your illness and constant hospital appointments” when pursuing default surcharges.
- Incredibly, HMRC’s litigator commented in Tribunal that the taxpayer “has not provided anything to the Commissioners to the effect that the health of the director prevented the company from making payment of VAT by the due date”. When pushed on this point by the Tribunal HMRC’s litigator responded that the director should have “made alternative arrangements”.
The Tribunal considered whether the director’s actions were reasonable. He suffered with a debilitating illness, was diagnosed with life-threatening cancer and an operation to remove a tumour resulted in unexpected and significant spinal damage. The director put in place arrangements he believed would ensure the company met its VAT obligations. Unfortunately, the company was subject to an £80k fraud (reported to the police) which resulted in the company defaulting on its VAT obligations.
The Tribunal referred to the Court of Appeal decision in Steptoe. Lack of funds does not give taxpayers a reasonable excuse for non-payment of VAT; however, the cause of insufficiency of funds could provide a reasonable excuse. The Tribunal commented “we have no hesitation in finding that the company has a reasonable excuse for its VAT defaults”.
The Tribunal gave its decision orally at the end of the hearing. The Tribunal suggested a short decision might be sensible. This is common in dealing with default surcharge appeals in respect of which a full written decision is unusual. The director of Sandpiper agreed; however, HMRC refused and requested a full decision in case HMRC wishes to apply to lodge an appeal with the Upper-Tier Tribunal.
Given the position, the fact that HMRC even took the case let alone considered that it might then lodge an appeal might be viewed as surprising. In issuing a full decision the Tribunal took the opportunity to comment on HMRC’s approach to dealing with taxpayers suffering serious medical conditions.
Although the director of Sandpiper advised HMRC in writing on numerous occasions that he had severe difficulty hearing and could not hold a telephone conversation, HMRC continually told him to call them. It seems clear that the director has a number of long-term health conditions defined by the Equality Act. HMRC Debt Management and Banking Manual guidance at DMBM585185 instructs HMRC officers to take account “in all cases” the “possible detrimental effect on the debtor” of taking recovery action. Officers should also consider “the possibility of unreasonable distress” and “the likelihood of adverse publicity” if unsuitable action is taken. The Tribunal also commented that, in this case, the director could (or should) have been referred to a HMRC Needs Extra Support (NES) Team. The Tribunal decision concludes as follows. “The Tribunal has no jurisdiction over how HMRC treats its disabled customers, and no jurisdiction over the collection of VAT debts or the allocation of tax payments. Nevertheless, we hope that HMRC will take into account our comments”.
This case and HMRC’s behaviour, would probably not have been widely circulated and be in the public domain had HMRC’s litigator accepted a short decision. HMRC’s insistence on a full decision gave the Tribunal an opportunity to lay out what, in our opinion, should be viewed as an embarrassing sequence of HMRC actions. Nevertheless, this illustrates how HMRC behaves in certain cases. It is hard to imagine the stress and anxiety caused to the taxpayer in this case by HMRC. In his letter of 8 June 2017 to HMRC the director of the business concluded “…firstly, you discriminate against me because of my disability and secondly you hound me with daily texts/letters from Debt Management and I am the person who has had to fight to sort out your errors going back 2 years”.
It will be interesting to see if HMRC applies to the Upper-Tier to appeal this decision. What is surprising is that at no point does HMRC express any sympathy for its treatment of the taxpayer or offer an apology for its actions. HMRC has a difficult job to do and, in our view, it undermines the public support it needs to do that job when it shows such a total lack of empathy. It would be interesting to know just how much taxpayer money HMRC invested in pursuing the £9,643.81 of surcharge assessments; however the reality that anyone dealing with this fact pattern thought that this was in the public interest and a good use of taxpayer’s money is mystifying to us.