23. Before we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the event(s) complained about had a negative effect which the organisation has not put right. During our enquiries with HMRC about this matter, HMRC conducted a further review of Mrs D’s request which included consideration of her eight points and provided us with the guidance related to collecting tax. Therefore, we consider HMRC has now done what it should have done.
HMRC’s consideration of a request to exercise discretion
24. In line with the complaint standards, organisations should have an effective complaints system that makes sure colleagues take a thorough, proportionate and balanced look into the issues raised in a complaint. It gives service users fair and open answers to their questions based on the facts and takes full accountability for mistakes identified.
25. HMRC colleagues should actively listen and demonstrate a clear understanding of what the main issues are for the service user who has made the complaint, and the outcomes they seek.
26. Our Principles of Good Administration say that organisations should create and maintain reliable and usable records as evidence of their activities. They should manage records in line with recognised standards to ensure that they can be retrieved.
27. Following the Tribunal decision that the Company was liable for import tax, Mrs D wrote to HMRC via a tax specialist, to ask it to consider waiving the VAT. She asked it to consider eight points in support of her request. The eight points were:
• the nature of the company’s mistake • The company did not profit from the mistake • the UK Exchequer will receive a windfall gain • no loss to the UK Exchequer • no loss to the Exchequers of EU member states • comments of the judge who decided the appeal • mistakes made by HMRC • the stance taken by HMRC to pursue the company.
28. HMRC responded in November 2023. It addressed the ‘mistakes made by HMRC’ point. It explained it could not consider the other points as it was outside of the complaint department’s remit to consider issues that could be addressed at court through an appeal process. HMRC repeated this stance at tier two of its complaint process.
29. We asked HMRC to provide us with its guidance or policy in relation to what it should do when it receives a request for VAT to be waived through its complaint process. We also asked it to explain its rationale for not providing responses to the other seven points Mrs D raised in support of her request.
30. HMRC explained to us that it had not documented any rationale, so it was not clear whether it had fully considered the request. It told us it approached its admin law policy team and its VAT policy team to determine if statutory discretion can be applied before considering if discretion under collection and management powers should be applied. Effectively, this means HMRC reconsidered Mrs D’s request.
31. This means that originally, HMRC did not act in line with our Principles of Good Administration because it did not maintain a record of its activities. Nor did it provide open and accountable answers to Mrs D’s questions.
32. After our enquiries, HMRC provided us with the appropriate guidance and its rationale for not exercising discretion.
33. The guidance is within the admin law manual. The Commissioners have some limited discretion regarding the collection and management, under section 5 of the Commissioners for Revenue & Customs Act 2005 (CRCA 2005). However, it can only forgo the collection of taxes if this would obtain a higher net return for the national exchequer. In other words, it would cost more to collect tax than the tax due itself.
34. The guidance says HMRC must apply the law correctly and the Commissioners cannot choose to move away from this position simply because the result seems unfair or unreasonable. To move away from the strict application of the law in this way would be contrary to the will of Parliament. However, there may be circumstances where applying the discretion would result in a more efficient management of the revenue and in such cases the Commissioners can choose to do so.
35. HMRC did not provide this information to Mrs D during the complaint process. HMRC provided this information to us when we contacted it to ask about how it considers discretion.
36. The guidance sets out that the starting point in all cases is that HMRC should apply the law correctly. It explains that if, in a particular case applying the law does not seem to be the best course of action (for example, it may be unduly expensive to administer), HMRC can use the following three tests to consider whether HMRC can use discretion not to collect VAT/tax. The tests are:
• highest net return – would applying the law strictly result in less tax being collected?
• purposive interpretation – was the law unclear or open to interpretation?
• temporary anomaly – has the application of the law led to unintended or anomalous outcomes?
37. Having reviewed the request again against the relevant guidance above HMRC explained to us that:
• applying the law in this case would not result in less tax being collected.
• the law was clear at the relevant time, as confirmed by the first-tier tribunal.
• there have been no unintended effects. The law has operated as intended.
38. HMRC confirmed that, if the first point has not been met, they do not move down the list and consider all points.
39. The UK central government complaint standards set out how organisations should handle complaints. These say that organisations should give a clear and balanced account of what happened, based on established facts. Each account compares what happened with what should have happened. It gives clear references to any relevant legislation, standards, policies, procedures or guidance, based on objective criteria.
40. They also say organisations should make sure staff can identify when issues raised in a complaint should be (or are being) addressed via another route at the earliest opportunity, so a co-ordinated approach can be taken. Other possible routes include appeals, reference or statutory review by a tribunal or action in a court of law or disciplinary process
41. In its responses, HMRC set out why it could not consider each of Mrs D’s points – most of them fell outside its remit as a complaint handling service. It explained that as the points pertaining to HMRC’s misleading advice and legitimate expectation do not carry a right of appeal, it could consider those though the complaints process. However, since we approached HMRC, it has since considered the rest of the eight points.
42. HMRC’s responses also explained it has a duty to collect the correct amount of tax as required by statute and has limited discretion available to decide otherwise.
43. During this primary investigation, we can see that in its responses, although HMRC explained it has limited discretion to decide not to collect tax, it did not refer to the relevant guidance in making that decision. When we spoke to HMRC, it explained it had not documented any rationale for making that decision.
44. For that reason, HMRC agreed to reconsider the request and provide us with the guidance it used. Having looked at it again, HMRC’s decision remained unchanged, for the reasons we have set out above.
45. HMRC told us as part of our enquiries that a caseworker would look again at the eight points Mrs D made in support of her request for HMRC to waive collection of the VAT. HMRC sent us its responses to each of the points. Having considered each of the points, its decision remained unchanged.
46. We are therefore satisfied that HMRC has now completed a full consideration of Mrs D’s request, but ultimately decided against waiving collection of the VAT. It did so in line with its guidance on collection of VAT and we are satisfied HMRC has now worked in line with our complaint standards.
47. We appreciate how disappointed Mrs D will be; this is not the result she was hoping for. Our focus could only ever be on considering if HMRC worked in line with the relevant guidance, which we can see it has.