Partner Article

Who authorised HMRC’s “bully-boy” letter campaign?

Following the furore surrounding HMRC’s decision to mail ‘nudge’ letters to individuals paying tax at a lower-than-expected ‘effective rate’, we question why and how this extraordinary campaign was authorised. Whichever way you look at it, there’s no excuse for people within HMRC selectively ignoring information in their possession, then using that incomplete data to scare innocent taxpayers. HMRC has yet to clarify the sign-off processes involved, and perhaps more importantly, provide assurances that such an ill-advised campaign won’t be sanctioned again.

To recap, HMRC is on record confirming that 1,000 letters were being issued ‘as part of a trial’ to those whose effective rate of tax was lower than the department anticipated. HMRC considers that ‘nudge’ campaigns ‘help individuals identify any mistakes they may have made on their self-assessment returns’.

The problem is that these letters were sent to many individuals who had explained perfectly well in their tax returns why their ‘effective rate of tax’ was lower than might be expected. Examples included one individual whose generous charitable donations benefitted from relief under Gift Aid, and a trader who’d incurred losses which were tax relievable. Had a simple check been carried out on these tax returns, HMRC would have immediately realised the reason for the relatively low tax rate.

So, what process should have been followed?

In theory, HMRC could (and perhaps should) have consulted the Compliance Reform Forum. Made up of representatives from all the accountancy professional bodies and members of no fewer than nine HMRC Departments, the Forum seeks input from tax agents and their clients into the design and delivery of new compliance checking activities. But published minutes from the most recent meeting on 26 February make no reference to this campaign, and it appears that this wasn’t even discussed.

The wording of the ‘nudge’ letter also provokes questions about who signed off the text. Regardless of the worrying tone, the letter also refers recipients to their 2011/12 tax returns, despite the fact that the statutory time limit for queries about this tax year closed on 31 January 2014. In these circumstances, HMRC is only permitted to follow up on a ‘closed’ year if it has grounds to suspect that something is wrong. As information being queried is clearly shown on the tax returns in question, it seems very unlikely that data held on the individuals HMRC chose to target provides any grounds to justify suspicion.

So, the question remains – was it the process which was flawed, or the execution?

Perhaps HMRC should let us know before undertaking another campaign.

This was posted in Bdaily's Members' News section by George Bull .