Few people in business, or even their tax advisors, will have much experience of appealing to tax commissioners. Perhaps an odd businessman has appealed against a tax inspector's amendment of his self-assessment return, but that is the likely limit of their experience. The IT channel is no exception.
Tax inspectors are well aware of the ignorance of taxpayers as to their rights of appeal. They often give the impression that appeals are not worth either the time or the effort.
In fact, taxpayers may appeal to tax commissioners on such matters as surcharges and other tax penalties. It is also possible for a taxpayer to appeal against a tax inspector's notice for the production of papers, such as personal private bank accounts and credit card statements.
Line of defence
The National Association of Tax Commissioners has now produced guidance notes which make it clear that the views of tax commissioners differ widely from the Inland Revenue on some very important issues.
For example, tax commissioners believe that a notice to a taxpayer to produce statements for his private current account should be upheld only in exceptional cases. A taxpayer is entitled to appeal against such a request and there is no need for him to show that he has good reasons to do so. The taxpayer needs only point out to commissioners that he is not required to prove his case.
Instead, the law requires tax commissioners to make up their own minds as to whether it is reasonable of the Inland Revenue to require the delivery of such documents. Furthermore, when a tax inspector requests the delivery of multiple documents, the law requires that commissioners should consider each document separately.
Tax commissioners can, and often do, take a completely different view of matters to the Inland Revenue. Commissioners are unpaid volunteers and they do not regard themselves as part of the machinery of tax collection.
Instead, they jealously guard their role of intervening in disputes between taxpayers and Inland Revenue inspectors. But too many taxpayers are frightened of appealing to commissioners when, in reality, they can be a great defender of the taxpayer against very biased Inland Revenue interpretations of its own rules.
Burden of proof
When preparing an appeal to commissioners, taxpayers need to ask the following questions:
- What has to be proved?
- Who has to prove it?
- What standard of proof will be required?
- What evidence is available?
In cases of appeals against a tax assessment, a penalty or a surcharge, the answer to the first two questions is that the taxpayer has to show that the assessment is excessive or that he has a 'reasonable excuse' for his failure to file his return or pay his tax on time.
In all proceedings before the commissioners, the standard of proof required is the civil standard of proof which operates 'on the balance of probabilities'. This means that the taxpayer does not have to prove that something was definitely the case, only that it was likely to be the case.
For example, to prove that a tax payment was posted a fortnight before the tax was due, it is not necessary to have sworn evidence from other individuals. The commissioners will quite likely accept the unsupported word of the taxpayer himself, or of his personal assistant or book-keeper. In this case, the burden of proof is really on the tax inspector to prove that the taxpayer never sent the payment - a difficult task.
In some circumstances, there is no burden of proof on either side. This applies when an inspector argues that a tax assessment should be increased on appeal or when a taxpayer appeals to have a notice to produce documents set aside.
In a number of circumstances, the law excuses a taxpayer from penalties or surcharges if he can show to the satisfaction of the commissioners that he had a 'reasonable excuse' for not submitting a tax return or making a payment on time. The Inland Revenue has published its own interpretation of what it considers a reasonable excuse.
However, this is only what the Inland Revenue believes is the case. The guidance notes issued by the National Association of Tax Commissioners (NATC) strongly states that: "It is for the commissioners, not the Revenue, to decide what is a reasonable excuse in a particular case." Many bodies of commissioners do not take kindly to the Revenue telling them how to exercise a discretion that Parliament has given to the commissioners. In other words, commissioners seem to view the Inland Revenue as a bullyboy.
The message is a clear one. The commissioners are encouraging taxpayers to stand up to the Inland Revenue. They are insistent that they themselves will not be pushed around by the Inland Revenue, but will come to their own independent judgements on matters concerning tax legislation.
For example, the NATC disagrees with the Inland Revenue's official view that a tax office's failure to issue a reminder for tax due can never be accepted as a reasonable excuse.
Most people are fairly frightened of the Inland Revenue's apparent powers. When tackled by the Revenue, they run to their accountants and other advisors. These advisors themselves are often themselves frightened by the apparent awesome authority of the Revenue.
But commissioners are trying to point out to taxpayers that they should not be afraid of standing up to the Revenue. They also criticise the Revenue view that VAT tribunal decisions on what constitutes a 'reasonable excuse' under VAT legislation have no application to Inland Revenue cases. The NATC states: "There is no rational reason why what is a reasonable excuse for submitting a VAT return late should not be equally applicable to submitting an Inland Revenue tax return late."
VAT tribunals have held in a number of cases that the insolvency of a major customer, which creates an unexpected cash flow problem, does constitute a reasonable excuse for paying VAT late. The commissioners believe this excuse is also reasonable in Inland Revenue cases.
Learning the lessons
The lessons from this article should be clear. The Inland Revenue is a massive bureaucracy that loves to intimidate taxpayers and even tax commissioners.
The commissioners are well aware of this position and are actively encouraging taxpayers to challenge the Inland Revenue's authority and power - a lot of matters that are accepted as standard regulations by tax inspectors are heartily disagreed with by tax commissioners.
The Inland Revenue bulldozes thousands of businesses into bankruptcy each year. This is because taxpayers do not know how to query or stand up to assessments for tax and other claims and penalties made by the Revenue. Ignorance rules the field - as is so often the case with British and large bureaucracies.
People tend to accept what they might be told at the tax office on the assumption that tax inspectors must know their own rules and regulations. In actual fact, there is a great deal that a savvy individual can do to tackle problems they might be having on their tax affairs.
Most businesses get into various disputes and tangles with the Inland Revenue at various times. It is a simple matter of writing a letter to appeal against any decision of the Inland Revenue. Subsequently, at the appeal hearing there is no great onus on the person appealing to provide convincing evidence about their complaint. The tax commissioners will ensure that taxpayers get a fair hearing.
Tax inspectors have been viewed as fearsome enemies of businessmen since time immemorial. The anxiety of being investigated in depth gives rise to this in-built fear. In reality, a taxpayer with the good sense to put up a pragmatic and brisk defence of his position can, with the help of tax commissioners, defend himself successfully.
There is no excuse for taxpayers to allow themselves to be pushed around by the Inland Revenue when there is an excellent line of defence in the form of tax commissioners and their appeals procedures.
John McQueen is founder of The Bankruptcy Association.
This was first published in April 2002