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Summary of Selected Cases

INLAND REVENUE

7. Case No. C.643/97

Mishandling of a taxpayer's liability to capital gains tax

Mr X had been a director and shareholder of a company which had been sold to another company. In early 1990 he gave the Revenue details of the transactions and his valuation of the shares he had held at 31 March 1982, and asked for advice on how to proceed. He was told that valuation needed to be made by the Revenue's Shares Valuation Division and that questions arising would be considered when that had been done. The Revenue did not seek advice from Shares Valuation Division but sought advice instead from other Head Office specialists on their interpretation of the agreement for the sale of the company. It was not until September 1992 that the Revenue told Mr X that no tax other than capital gains tax (CGT) applied to the transactions as they affected him. The Revenue then appreciated that valuations from Shares Valuation Division had not been sought. In September 1993 they accepted Mr X's valuation proposals because historical information was no longer available to them from their files. They subsequently appreciated that Mr X had not made a timely election to have his assets rebased to their 31 March 1982 value. (An election would have been in time if made before 5 April 1991.) A late election application was refused; that had the effect of producing a no gain/no loss position on Mr X's disposals which would otherwise have given rise to allowable losses. The Ombudsman found the delays by the Revenue in dealing with Mr X's CGT liability and by the Adjudicator in dealing with his subsequent complaint were extreme and amounted to maladministration. Furthermore, the Ombudsman held that the exercise of the Revenue's discretion regarding the late election application was flawed. The Chairman, in looking at the case in the light of the Ombudsman's findings, said that it was exceptional such as to warrant the exercise of a wider discretion and admit the late election. The Chairman offered a consolatory payment of £500 in respect of the Revenue's shortcomings (in addition to £300 in respect of the Adjudicator's delays); consideration of any costs incurred by Mr X in connection with delay and shortcomings by the Revenue and the Adjudicator; and his unreserved apologies. The present Adjudicator and her predecessor added their apologies.

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