Complaint about HM Revenue & Customs
Jump to
HM Revenue & Customs recovered tax (which had been underpaid as a result of an error on their part) plus interest, failed to pay entitlement to tax credits and failed to address complaints
Background to the complaint
Mr P’s tax code for 2002-03 included a child tax allowance. In 2003-04 Mr P did not receive a new tax code and his employer used the 2002-03 code (a new code should have been sent, with the allowance removed, due to the introduction of tax credits in April 2003).
In May 2004 HM Revenue & Customs (HMRC) discovered that they had deleted Mr P’s previous tax record, so they established a new one and sent a new tax code (with the allowance removed). In December 2004 Mr P completed an online tax self-assessment form for the 2003-04 tax year but was unable to enter his previous tax code (containing the allowance) onto that form, so his self-assessment showed an underpayment of tax for that year. In January 2005 he contacted HMRC.
In February 2005 HMRC sent Mr P a self-assessment statement showing underpaid tax of £499.28. Mr P said that his tax only appeared underpaid because he had been unable to insert the correct code on the self-assessment form. In March 2005 Mr P claimed tax credits (his claim was backdated to December 2004).
In April 2005 HMRC told Mr P that he should have received a different code for 2003-04, had underpaid tax and that tax credits had replaced the child tax allowance. Mr P asked HMRC to liaise with the Tax Credit Office (to whom he copied his letter) in order to offset his unclaimed tax credits against the underpaid tax. In May 2005 HMRC said that he should pay the underpaid tax.
Complaint to HM Revenue & Customs
In May 2005 Mr P sent a formal complaint letter to HMRC and wrote to the Tax Credit Office asking if he was eligible for tax credits from April 2003. In June 2005 HMRC said that a new tax code should have been issued for 2003-04, offered to recover the underpaid tax by adjusting Mr P’s 2005-06 tax code and told him to contact the Tax Credit Office as he appeared to be entitled to claim from April 2003. Correspondence continued and in October 2005 Mr P escalated his complaint to HMRC’s Area Director; he asked for the underpaid tax and unclaimed tax credits issues to be resolved and to be paid compensation for inconvenience. HMRC said they would investigate.
In December 2005 HMRC wrote to Mr P, apologised and offered a compensatory payment of £80. They said that the underpaid tax did not meet the criteria for remittance, that they could not offset against tax credits, that the Tax Credit Office had strict rules about when payments started and that the issuing of the new tax code in May 2004 should have alerted him to the fact that he was no longer receiving the child tax allowance.
In January 2006 the Tax Credit Office wrote to Mr P and said that claims could only be backdated by three months and that income tax liability and tax credit eligibility were separate and could not be offset. In February Mr P paid his outstanding tax bill with interest of £536.48.
What we investigated
In October 2006 Mr P’s MP referred his complaint to the Ombudsman, namely that: HMRC’s actions had caused him to suffer financial loss. We investigated Mr P’s complaints that:
- HMRC recovered tax plus interest from him which had been underpaid as a result of an error on their part;
- he had not been given his full entitlement to tax credit dating back to 2003; and
- HMRC had failed to fully address his complaints.
What our investigation found
HMRC acted maladministratively by deleting Mr P’s tax code, which caused him actual financial loss. The deletion of Mr P’s tax records meant that he did not receive a personalised claim form and other information regarding the introduction of tax credits. Had he done so, he would have claimed and received an award from April 2003.
We found that, although HMRC were technically correct to charge Mr P interest on his underpaid tax, their delay in resolving his complaint allowed the interest to accrue for longer than it should have done.
We found that the standard of HMRC’s complaint handling was so poor as to amount to maladministration. They failed to give Mr P the right information (for example, exact details of the tax credit backdating limits) and did not properly manage his expectations (for example, by saying that he appeared to be eligible for tax credits from April 2003). They also missed opportunities to apologise and failed to act in a joined-up manner when the issues he raised covered both income tax and tax credit matters.
We found that Mr P suffered actual financial loss and was caused additional worry and inconvenience as a result of HMRC’s maladministration.
Our investigation, which concluded in March 2007, fully upheld Mr P’s complaint.
Outcome
As a result of our recommendations, HMRC apologised and made the following payments:
- £608 (equivalent to Mr P’s tax credit entitlement between April 2003 and May 2004);
- £100 (for distress and inconvenience caused by the deletion of Mr P’s tax record);
- £100 (for worry and inconvenience caused by delays and poor complaint handling); and
- £40 (in lieu of the interest paid on the underpaid tax).
Principles of Good Administration
The Principles of Good Administration were not referred to in our report but this case summary serves to illustrate the following Principle:
- ‘Being customer focused’ (responding to customers’ needs flexibly, including, where appropriate, co-ordinating a response with other service providers).
