What Happens When HMRC Gives Incorrect Advice? 

HMRC once had a generous policy on misdirection – although it was not necessarily generously applied! In Notice 48 (March 2002) Extra-Statutory Concessions, it stated:

‘If a Customs & Excise officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person’s attention.’

However, in Revenue & Customs Brief 15/09, HMRC announced that this concession was being withdrawn from 1 April 2009. HMRC then introduced a Statement of Practice giving the circumstances in which taxpayers could rely on its advice. However, this, too, was withdrawn from 1 January 2012, leaving taxpayers with little protection from misdirection by HMRC.

What can Taxpayers do to Protect Themselves?

HMRC’s information and advice comes in various forms, such as letters, phone calls, webpages on GOV. UK, webchat services and social media messages. The information might be general (commonly referred to with the overarching term of guidance) or may take the form of bespoke advice HMRC provides, for instance, in response to individual letters or queries.

Like any organisation, HMRC is not infallible, and mistakes can be made. So, what happens if its guidance turns out to be wrong?

HMRC has recently updated its ‘reliance on guidance statement’, which confirms that HMRC agrees to be bound by its own incorrect statements if:

1. itis reasonable for taxpayers to expect to be able to rely on the advice given by HMRC; and
2. itwould be very unfair for HMRC to act in a way different from the advice and information it provided.

When reviewing whether it should be bound by any wrong advice provided, HMRC will consider cases on an individual basis. It will review factors such as:

• whether HMRC’s advice was clear and not subject to limitations;
• whether the taxpayer’s actions were affected by HMRC’s advice;
• whether any departure from HMRC’sprevious(incorrect) advice would leave the taxpayer financially worse off; and
• whether ignoring thepreviousincorrect advice would be an abuse of power by HMRC.

In cases where the taxpayer has specifically sought advice, HMRC will consider whether it was made aware of all relevant facts, whether the taxpayer made it clear they were seeking detailed advice, and for what purpose.

If HMRC guidance is found to be incorrect, taxpayers must follow the corrected advice once it is made available. Equally, where legal cases affect the interpretation of tax law, any resulting updated guidance should be followed.

Instances of taxpayers getting their taxes wrong as a result of following incorrect HMRC advice will hopefully be rare. However, anyone relying on HMRC guidance in any form should keep records of the information and advice they have used, in case HMRC later challenges their tax position. Retaining HMRC letters, noting the content of telephone advice, and keeping copies of relevant GOV.UK webpages will be key to evidencing precisely what advice the individual has relied on.

What Recourse Does the Taxpayer Have if Misdirected by HMRC?

It is surprising for most taxpayers to learn that misdirection by HMRC cannot be appealed to the tax tribunals. A taxpayer’s first recourse is to write to the Complaints Unit detailing all the facts and stating that they were only following the advice from HMRC.

If this is unsuccessful, the next stage is to refer the matter to the Adjudicator – an independent person (in theory) – for review. The final recourse is Judicial Review in the High Court, which is ruinously costly.

Practical Tip

If you have contact with HMRC, keep detailed records of any advice it may give you.