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HMRC Slammed for Unreasonable Behaviour As Costs Awarded to Taxpayer

The increasing aggressiveness of HM Revenue and Customs (HMRC) in dealing with taxpayers was recently given short shrift by the First-tier Tribunal (FTT), which criticised HMRC's high-handedness and ordered them to make a payment to the taxpayer concerned.

The tax battle involved a builder who made a number of errors in completing his VAT returns. The errors led to three VAT penalties totalling less than £800 and a VAT assessment of £69 being issued. However, the penalty notices were found to be invalid because the original notices were issued and then withdrawn. HMRC failed to reissue them.

The FTT found that the builder's errors were careless and not deliberate, but more significantly, HMRC's change in approach to the severity of the errors led it to describe their way of handling the matter as 'hopelessly muddled' and containing a 'spurious justification' for their change of strategy. In all, the FTT found that there were 'a number of disturbing features about the way the case has been conducted by the respondent (HMRC)'.

Commentary on the case has focused on the poor quality of HMRC's performance and arguments in making penalty assessments and on the decreasing quality of HMRC's case management generally, with their emphasis being on trying to browbeat taxpayers into submission even when their case is lacking merit.

The FTT can only make a costs award in specific circumstances, one of which is where either party has acted unreasonably.

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