Today has brought three interesting insights into the increasingly fraught world of HM Revenue & Customs, of which two reflect the crisis in which that organisation increasingly finds itself mired, and one shines out as a beacon of hope among the dark shadows of despair.

In the desire to end on a positive note, I will deal with the good, the bad and the ugly in reverse order. Firstly, today brings news that the majority of HMRC staff affiliated to the PCS Union have voted in favour of strike action, with over three-quarters voting for other forms of industrial action. The background to this is complex, but the main features include:

1. Plans to cut 10,000 jobs by 2014-15, in addition to the 30,000 already cut since April 2005.

 2. The general public sector concern about adverse adjustments to pensions.

3. Pay issues, inlcuding presumably the vexed issue of regional pay.

I have to say that, in respect of issue 1, I have every sympathy with those who voted for strike action. HMRC is rapidly becoming unfit for purpose, with call centre staff seeking to field technical questions that they are woefully under-trained and under-qualified to handle, whilst the shrinking pool of fully trained and highly competent tax inspectors are hidden behind impenetrable walls, inaccessible to the taxpayers and their agents who need them to handle the more complex aspects of the UK tax regime.

And of course the workload on the remaining staff is becoming intolerable, leading to increased delays, greater propensity to error and a reduction in resources available to combat artificial tax avoidance schemes and outright tax evasion. It cannot make sense that £1.1 billion of tax should be sacrificed (per the Public Accounts Committee) as a result of swingeing HMRC job cuts; as the PCS general secretary rightly says, it makes no economic sense to cut staff from the department responsible for collecting the taxes that fund all our public services.

Turning now to the bad, no doubt contributed to by overwork, but also by a noticeable tendency among HMRC staff to seek to maximise the tax take rather than collect the right amount of tax, no doubt under pressure to do so from above. I have a number of cases involving taxpayers who invested in a company called Northern Lynx plc, a company in which they subscribed for shares at around 1p, and whose value on the AIM market rose at one point to around 5.5p.

A number of clients of my firm, and other firms for which I provide consultancy  advice, invested in Northern Lynx and took advantage of the growth in value to give significant shareholdings in the company to charity, claiming the income tax relief for the market value of quoted shares gifted to charity.

It subsequently transpired, after lengthy investigations by the Financial Services Authority and HMRC, that the promoters of Northern Lynx plc had artificially inflated the value of the company’s shares to the tune of some 4.5 times (HMRC suggests the shares were genuinely worth 1.2p each). This was lamentable behaviour on the part of the promoters and I sincerely hope and trust that they reap their just deserts for their actions.

However, HMRC are now seeking to restrict charity share gift relief for the taxpayers who invested in the company to their opinion of true market value. There is no suggestion that these shareholders knew what was going on with regard to the price-fixing arrangements, and they not unnaturally did what any quoted shareholder would do to determine the value of their shares, which is to look in the Financial Times and use the quoted value. This raises the question of whether the innocent should be punished for the sins of the guilty, which I venture to suggest is not a good legal principle to establish. This one will, I suspect, run and run.

Interestingly, the letter I have seen on the subject seeks to replace the 5.5p quoted value with a figure repeatedly stated to be “£1.2p”. Sounds in fact like a good deal for the taxpayer, but I suspect this is rubbish, and means 1.2p. We will no doubt find out when we agree the revised and dramatically increased valuation! Pressures of overwork?

And so to the good, which starts with another bad. I have a client who suffered prolonged and awful abuse in the military, leading to lasting health problems. His sufferings were exacerbated by unbelievably poor handling of his claims for pensions by the military authorities, as a result of which he received substantial compensation. I advised him that in my view the compensation was non-taxable, and wrote a detailed 7-page advancing my arguments to HMRC, seeking a ruling to that effect.

Having kept my client waiting for more than 2 months for a reply, HMRC then responded with a one page letter, ignoring all my arguments and simply stating that the amount was taxable. Envisaging thay my client was about to encounter yet more problems with bureaucracy which he could well do without, I took the highly unusual step of contacting a senior inspector at HMRC whom I know through other cases and asking what we should do.

The response was amazing. I was introduced via a second inspector to HMRC”s expert in the area, who resolved the matter favourably to my client in a couple of weeks with full reference to the technical issues at stake. This is a breathtaking quality of service, but it does beg the question; why can it not be available to all agents and taxpayers as a matter of course? 

Still, this gives me hope for the future of HMRC, that there are still highly competent inspectors devoted to their work and offering very high standards of service and technical knowledge. May they continue to prosper in HMRC, and not be stifled by the apparent ‘dumbing down’ of the organisation. Gentlemen, I salute you!

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