There has been much publicity in the media in recent months over tax avoidance, and whether certain parties are paying the “right” amount of tax.  Whilst such discussions have often focused on big businesses trying to pay less tax, fairness in the tax system can swing both ways with unexpected bills being incurred.  The theme of fairness ran through three recent tax cases heard by the courts.
In the First-tier Tribunal case of Joost Lobler v HMRC (TC2539) the taxpayer was hit with a huge tax bill on partial surrenders of life insurance policies, despite having made a loss.  If he had made full surrenders, then he would have had no tax to pay.  The tribunal suggested that the taxpayer’s situation was “outrageously unfair” as he had made no profit or gain, but had become liable to tax, under the letter of the law, which could potentially bankrupt him.
In the recent case of T James V HMRC, the taxpayer persuaded the Tribunal that he had a ‘reasonable excuse’ for late payment because he chose (out of limited resources) to provide his corporate business with funds to pay their PAYE, VAT and corporation tax, rather than keep up with his previously agreed ‘time to pay’ arrangements on his personal account with HMRC.  This enabled the business to continue and increase the total tax take to HMRC.  Despite this, HMRC still took the case to tribunal rather than consider the fairness of the case internally.
Finally, in the case of J Jackson v HMRC (TC2448), the taxpayer had received termination payments from his employer when he retired, on which tax had been deducted at basic rate.  The payment was included on Mr Jackson’s tax return, which was filed on time. He believed that his employer would have deducted any tax due, having always been taxed through PAYE and therefore made no payment of tax at the higher rate.
He received a tax demand from HMRC.  On receiving written confirmation of what the additional tax related to, he paid the tax but was then issued with a late payment penalty.  The Tribunal found that the taxpayer had acted reasonably and had a genuine belief that his taxes were up-to-date.  The tribunal overturned the penalty and noted that the taxpayer clearly felt aggrieved and unfairly treated.
As can be seen from these cases, HMRC’s view on fairness appears to be at odds with that of the general population and the concept of “paying the right amount tax” is not as clear cut as the media portrayal.  Tax is complicated, and taking professional advice is therefore essential.

1 thought on “Fairness in Tax – A Round-up of Some Recent Cases

  1. The result in the Lobler case was wholly predictable. I had a client in precisely the same position and advised her not to appeal. The only way to proceed, in my opinion, would have been by an application for judicial review, but funds were not available for this, so we tried an application to the Adjudicator. It took the Adjudicator a year to reach a decision, which was (unsurprisingly) for HMRC.
    Finance Act 2012 contained anti-avoidance provisions to counter Ships 2 schemes, but did not tackle the other side of the problem – i.e. the Lobler situation. I asked me MP to try and get the legislation amended to do this, but the Treasury would not budge. It is time for pressure on HMG to remove this grotesque unfairness.
    Richard Sowler

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