Postal delays press contractors identified by HMRC on discovery assessments

Striking Royal Mail staff could sting contractors whose HMRC discovery assessment relating to the loan charge is in the post -- but delayed, or stacked somewhere in a mail room.

HMRC began issuing the assessments in late November 2022, to contractors it suspects didn’t include or didn’t fully include the loan charge in their 2018-19 tax return.

'Ask HMRC to postpone the tax'

From the Low Incomes Tax Reform Group and others, the advice for taxpayers is to consider “asking HMRC to postpone the tax” within 30 days of the date of the letter.

But post in the run-up to Christmas got severely disrupted due to walkouts over pay by the Communication Workers Union (CWU).

Monday just gone -- January 2nd 2023 -- was a substitute bank holiday for New Year’s Day, meaning no post was collected or delivered at all.

And while the CWU says no further industrial action is planned for 2023, resolution with Royal Mail has not been reached.

Talks between the two organisations are not even reportedly scheduled.

'Can often take a week for HMRC's letters to arrive'

So the outlook for contractors needing to appeal HMRC discovery assessments within 30 days, or pay the assessment outright within the period (as the letters request) is bleak.

“That 30-day period can run out quickly… -- it can often take a week for letters to arrive at the best of times,” cautions legal adviser Keith Gordon.

“Now [though], we also have a combination of Christmas post, [no post due to bank holidays] and [the threat of] postal strikes.”  

'Many discovery assessment appeals expected'

A tax barrister, Mr Gordon nonetheless believes that “many appeals” against the HMRC assessments will still be lodged by contractors.

And in spite of the postal system’s best efforts, that anticipated spike in appeals stems from the high bar HMRC must meet for Discovery Assessments (DAs) to be lawful.

“The discovery legislation -- when compared with their enquiry powers -- provides additional hurdles that HMRC will have to overcome in order to justify their assessments,” the barrister said.

“Each case will depend on its own merits, but I can imagine that grounds of appeal will cover subjects ranging from HMRC’s inability to use their DA powers, to challenges as to the amount of tax HMRC have estimated should be paid.”

'Loan charge breaches human rights'

In a statement, Mr Gordon continued to ContractorUK: “It is also possible that some taxpayers will argue that the loan charge is ineffective and/or a breach of human rights or even that, given the history of HMRC’s delays, it is an abuse of power for HMRC to issue discovery assessments.”

The barrister cautioned that he would not want to comment on the viability of the arguments which he exampled.

Yet campaigner Steve Packham of the Loan Charge Action Group believes such grounds for appeal against the taxman’s assessments sound entirely justified.  

'Taxpayer fairness being ignored'

“HMRC are abusing their powers and ignoring basic fundamental taxpayer protections, issuing discovery notices unfairly, when the reality is that HMRC failed to raise an enquiry in the statutory timescale,” Mr Packham told ContractorUK.

“Individuals should take professional advice and appeal quickly to challenge this. But it’s also time that parliament held HMRC to account through a proper investigation of the myriad of ways HMRC abuses the powers given by parliament and ignores taxpayer-fairness.”

The campaigner added: “The Loan Charge and Taxpayer Fairness APPG has consistently called for a proper inquiry into HMRC and the lack of accountability. With nine confirmed suicides caused by the loan charge alone, that inquiry is urgent as well as overdue”.  

'Be careful'

Formerly of the Revenue is tax expert Graham Webber but like tax barrister Mr Gordon, he sounded a note of caution to contractors on the receiving end of HMRC's letters.

“I've seen a few claims that loan charge assessments have been withdrawn…upon challenge and ergo, the taxpayer has ‘won.’  

“Be careful,” warned Webber, now of HMRC dispute specialist WTT Consulting.

“Where I've been able to access the underlying exchanges…the challenge that was made – successfully [to the discovery assessment] -- was that the means HMRC used to open an enquiry or make a [discovery] assessment was flawed.

“Therefore the [discovery] assessment cannot stand. While a success, at least temporarily, this is a long way from ‘defeating the loan charge’”.

'HMRC should vacate the assessment if...'

The LITRG is similarly urging contractors and other recipients of HMRC discovery assessments to not get ahead of themselves.

“Even if you are in the process of settling, this [receipt of a DA] doesn’t mean that you will conclude that process,” advises the group.

“If this happens, the discovery assessment will allow HMRC to recover the tax that they say is due, later. If you do go on to settle, although you have received an assessment, once settlement process is complete, HMRC should vacate (withdraw) the assessment.”

In an advisory for affected taxpayers, LITRG said it ‘strongly recommends’ that specialist tax advice is sought by recipients of the HMRC discovery assessment letters.

'Drafting an appeal'

Such professional assistance is said to be advisable to help with the process of “drafting an appeal against the assessment…as soon as possible…[given that] there are strict time limits if you want to appeal.”

Despite him acknowledging the risk to recipients posed by postal delays, Mr Gordon, of Temple Tax Chambers echoed: “It is clearly important for taxpayers to obtain professional advice. And to ensure that appeals are made to HMRC within 30 days of the date of the assessment.”