Penalties for tax errors can cut both ways

04 May 2022

New data shows that on average, HMRC paid £2.37m in financial redress per year to taxpayers for the effects of its failings. However, whilst HMRC’s penalty regime in respect of tax errors is well published and taxpayers are reminded of its existence at tax inspections and other checks on their tax affairs, the rules relating to financial redress payments that HMRC should pay in respect of the mistakes it makes are not well published or advertised. 

Mistakes by HMRC can range from poor service, such as excessive delays in dealing with queries or processing applications, right up to HMRC officers not behaving appropriately such as ignoring HMRC’s own rules and guidance.

HMRC receives an average of 75,000 complaints per annum and accepts that it has made a mistake in around 55 per cent of these complaints.

Where HMRC accepts that it has made a mistake, it should be proactive and invite a claim for financial redress in respect of the additional cost the complaint has incurred because of the mistake or for any distress HMRC has caused. However, in our experience, HMRC tends not to invite such claims, and instead generally waits for the taxpayer submit one. 

Taxpayers should consider submitting a complaint to HMRC if they are experiencing a poor service from HMRC, including encountering HMRC officers whose conduct does not meet the required standard. A complaint should be made not only to resolve the ongoing issue but also to seek financial redress for any costs incurred or distress suffered as a result of HMRC’s mistakes. 

For those concerned about becoming a target for additional scrutiny and enforcement by HMRC if they make a complaint, HMRC has undertaken on its guidance page that it will not treat taxpayers differently because they have made a complaint. Rather, HMRC says it will handle the complaint fairly, confidentially and investigate the issues thoroughly.