Errors in the risk assessment
32. Mr H complains the initial risk assessment HMRC carried out must have been flawed as he believes it conflated the words 'cryptocurrency' with 'blockchain'. He tells us he believes this triggered the compliance check.
33. Mr H has not seen the risk assessment but through correspondence with HMRC says it must have conflated the word ‘cryptocurrency’ with ‘blockchain’. We asked to see the risk assessment as Mr H and his agent believe something on the risk assessment triggered the compliance check, which they say was carried out unnecessarily.
34. We can see a risk assessment is a necessary part of an R&D claim. HMRC’s ‘Corporate Intangibles Research and Development Manual’ says, ‘In examining returns that contain claims to R&D tax relief or payable tax credits it is still necessary to carry out a risk assessment process. There are some risk factors that are of particular relevance when considering the R&D claim whether made in a return or otherwise.’
35. We understand Mr H says HMRC did not understand the technology described in his claim, so conflated the words ‘cryptocurrency’ with ‘blockchain’. Mr H says he believes this is what triggered the compliance check.
36. After reviewing the risk assessment, we cannot see any sign HMRC has conflated key terminology but has considered the risks in relation to the R&D claim. So, we do not consider there are any signs of maladministration (fault) in the way HMRC carried out its risk assessment, as it appears to have done so based on risks it identified in line with the tax relief guidance set out above.
Delays
37. Mr H also complains about the time it has taken HMRC to review his claim, as he tells us his agent constantly had to chase for updates. He also says HMRC has not responded to the detailed, factual rejections of the Company’s technical arguments in 2020 and 2021.
38. We can see from the records available to us this complaint has been going on for a long time with HMRC, and we looked at the timeline of events in how it handled the R&D tax credits claim.
39. HMRC’s ‘Corporate Intangibles Research and Development Manual’ says, ‘For the vast majority of claims we will aim to either pay the payable tax credit or contact you regarding the claim within 40 days.’
40. In July 2018, the Company’s R&D claims made for 2016 and 2017 were considered and both referred for allocation. HMRC completed a risk assessment of the claim in August 2018, and in September 2018, a caseworker was assigned to the claim to carry out an investigation. Up to this point, HMRC’s handling of the claim appears prompt and timely, in line with its ‘Charter’ commitment to ‘answer your questions and resolve things first time, or as quickly as we can.’
41. However, both parties agree delays then happened. It appears the delays with handling the claim were due to a misunderstanding from the HMRC caseworker and an office closure. The case worker misunderstood Mr H had already provided a USB with the information needed. So, the caseworker asked for more documentation in February 2019, even though this information was available as it had already been sent, and Mr H’s agent submitted an extra response referring to numbered documents on the USB stick submitted previously.
42. We can understand Mr H’s frustration at the caseworker requesting documentation when it had already been submitted via USB memory stick, and the fact this caused delays. HMRC says there was a scanning issue, so documents were not scanned until January 2019. But, the caseworker was unaware of the scanned documents and continued to ask for documents from Mr H.
43. In February 2019, the allocated office had been listed for closure. The case was reallocated to a new caseworker in April 2019 and reviewed in May 2019 as a priority, with an update to Mr H by June 2019. It was escalated to a formal complaint in July 2019.
44. We can see from the evidence available HMRC did delay reviewing Mr H’s R&D claim, and in December 2019, HMRC’s second-tier response accepted the delay and offered £50 in compensation, along with any professional costs incurred. The delay is sign of maladministration (fault) and is not in line with HMRC’s ‘Charter’, which says ‘We’ll give you accurate, consistent and clear information. This will help you meet your obligations, and understand your rights and what you can claim.’
45. We have thought about what impact the failure to act in line with the ‘Charter’ has caused. In our view, the error has caused Mr H extra professional costs and avoidable distress. We can see Mr H’s agent was asked to resend information even though HMRC already had the USB, which contained 1,000+ pages. This would have been time-consuming for Mr H and his representatives; so, it was reasonable for HMRC to agree to reimburse the professional costs in resending that information, which Mr H would not have incurred if HMRC’s had not made an error.
46. HMRC’s ‘Complaints and Remedy Guidance’ says customers can claim costs they have paid, including fees they have paid to their professional agents, as a direct result of its mistake or unreasonable delay.
47. We can see HMRC paid £1,800 in professional fees in line with the above guidance, which are the professional costs Mr H has been able to evidence. So, in our view, it does not need to take any further action to make up for the direct financial loss caused by its delay and it has acted in line with its remedy guidance above.
48. As HMRC has agreed to put right the financial loss caused by the delay, i.e. the professional fees involved, we have considered the other impacts the delay caused. These are frustration and distress.
49. Looking at our guidance on financial remedies, and considering the evidence outlined above from HMRC and the AO, we consider £50 and an apology an appropriate course of action to put right its mistake of delaying Mr H’s claim. If the delay had not happened, we cannot say Mr H’s claim would have been completed any quicker, due to the complexity and nature of the R&D claim. Also, we note that HMRC later prioritised his case to attempt to put him back in the position he would have been in as far as feasible.
50. What we can say is Mr H would not have been frustrated by having to chase up the matter. For the reasons set out above, HMRC has now put that frustration right.
Handling of the USB stick
51. Mr H complains HMRC lost his USB stick and some of its content may now be in the hands of his competitors.
52. We can see HMRC made a mistake in a letter in January 2019 where it told Mr H and his agent the USB stick was lost. We asked for evidence from HMRC to show what happened to the USB, and it has provided evidence of how Mr H was led to believe the USB had been lost.
53. Mr H sent HMRC a USB memory stick containing 1,000+ pages in September 2018. The caseworker was notified by HMRC’s systems of the information on the USB in October 2018, although the caseworker told the Company’s agent that HMRC was still waiting for the information requested.
54. We can see HMRC had scanning issues, which the caseworker was unaware of, and they consequently advised the agent the USB was lost. HMRC says this misunderstanding was due to internal scanning errors and the USB was never lost.
55. Considering the evidence provided by HMRC, we have not seen any evidence that shows it is more than likely the USB was not handled as it should, in line with HMRC’s own processes. Instead, the error appears to have been in wrongly telling Mr H the USB had been lost, which HMRC has accepted. HMRC says it securely destroyed the USB, following its own retention and disposal policy. We have not seen any evidence to show the USB was not destroyed in line with that policy, much less that it was released to a third-party competitor or into the public domain.
56. We can understand this is frustrating for Mr H. HMRC has given an explanation and we can see it looked into his concerns about the USB, and this is in line with our ‘Principles of Good Administration’, which say: ‘When mistakes happen, public bodies should acknowledge them, apologise, explain what went wrong and put things right quickly and effectively.’
57. We know Mr H is worried about the content of the USB falling into the hands of his competitors, despite HMRC’s assurances it has been securely destroyed. He can contact the Information Commissioner’s Office, if he disagrees HMRC’s handling of his data is in line with its obligations and if he wishes for a regulatory view.
58. Having looked carefully at this matter, we cannot see any failings from HMRC in its handling of the USB stick. So, we will take no further action.
HMRC failed to respond to Mr H’s detailed technical arguments
59. Mr H says HMRC failed to respond to his detailed technical arguments in 2020 and 2021. We asked for the response letters from HMRC and reviewed these.
60. We can see Mr H’s agent replied to HMRC. In those responses we can see he refuted claims HMRC has made. HMRC carried out a compliance check into the Company and used the agent’s responses as part of its investigation to ask more questions. We can see the compliance check has now ended and the Company can appeal HMRC’s decision, as it has told us it does not agree with the outcome.
61. We understand Mr H and his agent are frustrated with the need for the compliance check, and we can see carrying out checks is normal practice for HMRC, as set out in its ‘Corporate Intangibles Research and Development Manual’.
62. We have considered HMRC’s handling of the letters. HMRC did not address every point of the agent’s response, nor would we expect it to as there is no specific obligation to respond in this way.
63. In HMRC’s letter from August 2020, in response to the Company’s letter from May 2020, it said it can ‘understand that you would like to provide further documents which you feel might help us understand your client’s actions better, please include them as part of your response.’ We can see from this response that HMRC was giving the Company the opportunity to give more evidence.
64. HMRC public guidance on compliance checks, available on its website, says: ‘If you help us with the compliance check, we can: • complete it quickly and reduce any inconvenience to you • reduce the amount of any penalty you may be charged if we find there’s something wrong.’
65. Mr H says HMRC refused to accept his business' audited accounts and other facts and evidence to prove its trading status. This is not simply a complaint about administration; it is a complaint about decision-making by HMRC which carries a statutory right of appeal. As Mr H is ultimately saying HMRC’s decision about his tax credits entitlement was wrong, and that refusal to accept the evidence he provided contributed to that decision, he has a statutory legal route available to him which it is reasonable to pursue for the change of decision he wants. We cannot consider the substantive issue of HMRC’s decision-making about the evidence in question.
66. For this reason, we can only give a view about whether there is maladministration (fault) in the way HMRC handled Mr H’s correspondence and later complaint. We can see HMRC did respond to Mr H and his agent and set out its views, even if we cannot go on to consider the merits of those views. To that extent, it has acted in line with its ‘Charter’ commitment to ‘give you accurate, consistent and clear information.’
67. We cannot consider the technical arguments or whether it accepted his audited accounts as they also relate to the later tax credit decision and are for a tribunal’s judgement.
68. Therefore, we can see no maladministration (fault) from HMRC as it responded to Mr H and his agent while conducting the compliance check, in line with its guidance. So, we will take no further action.
HMRC did not respond to his whistleblowing report in July 2020 and senior staff pressured junior staff to close the case
69. Mr H says he made a whistleblowing report in July 2020. We can see in a letter from July 2020, Mr H and his agent asked for an investigation into the caseworkers dealing with his claim. We can see from this letter that Mr H and his agent felt the caseworkers were personally motivated to reject his claim. HMRC responded in August 2020 and explained it did not accept the caseworkers had personal motivation to reject his claim.
70. We have looked at the email from HMRC in response to Mr H and his agent’s complaint in July 2020. We can see a senior staff member replied to the email and provided escalation advice, but also refers to allegations from the Company that HMRC bullied Mr H and his representatives. We can see a breakdown in communication between all parties involved had happened.
71. Due to Mr H’s complaint that HMRC caseworkers were personally motivated to reject his claim and that this ultimately led to a flawed tax credits decision, we are unable to look into this further. If HMRC caseworkers did inappropriately affect the decision made in relation to the claim, this would be grounds for an appeal and may yet be considered by a tribunal. So, we cannot consider this issue further.
72. Mr H also says that in an email a senior member of staff put pressure on junior members to close his case. He was sent a copy of this email in error and was upset to read the contents.
73. We asked for a copy of this email from HMRC, dated February 2021, to see the contents. We can see from the email the senior staff member said she thought the case would be closed but requested a meeting with junior staff to discuss and ‘to quickly bring me up to speed on next steps.’
74. We can see in Mr H’s tier-one complaint it partly upheld the complaint as the email was internal and should not have been sent to Mr H and his agent. We can see HMRC did take the allegation seriously and conducted an internal review.
75. Mr H does not agree with the AO that HMRC does not need to share the outcome of its complaint investigation as he says it has a direct bearing on his claim.
76. Mr H and his agent may have expected to have known the outcome of that review as it relates to the conduct of the claim handler. But, we agree with the AO that HMRC has given an appropriate explanation about why it may not share the outcome. The concerns about staff conduct are a personnel matter for staff involved, and so HMRC would need to consider how it shares information in line with the law, given it has data protection responsibilities to those caseworkers as an employer. If a tribunal wishes to obtain any evidence from HMRC for the purposes of considering a statutory appeal, and if it considers it appropriate to request these documents, it has the power to do so.
77. We can see HMRC acted in line with our ‘Principles of Good Administration’, which say, ‘Public bodies should handle and process information properly and appropriately in line with the law. So while their policies and procedures should be transparent, public bodies should, as the law requires, also respect the privacy of personal and confidential information.’
78. We can see in sending Mr H a copy of the email in question, HMRC did not act in line with our ‘Principles of Good Administration’. This caused him frustration and distress, and we can see that HMRC has put this right by providing an apology in line with our ‘Principles for Remedy’.
79. We have not seen anything in the email to suggest HMRC failed to act in line with its ‘Charter’ commitment to act fairly and ‘work within the law to make sure everyone pays the right amount of tax and gets their benefits and other entitlements.’ In our view, the email does not pressure the HMRC decision-makers but asks for an update on their work. To that extent, we have seen no signs of maladministration (fault) by HMRC.
80. But, as with the previous point about the conduct of HMRC decision-makers and the substantive decision they made on the tax credits claim, any concerns that staff made the wrong decision, including that they did so at the urging of senior staff, will need to be raised with a tribunal.
81. Considering the above, we will take no further action. We know Mr H continues to feel deeply frustrated by the way HMRC has handled the Company’s claim, and these matters are important to him, and we hope the decision we have set out above is clear and shows him we have thought about it carefully.