David Jetuah, Accountancy Age, Thursday 8 July 2010 at 09:03:00

Profession protests against HMRC's bid to gain the right to claim court costs

It might come as a surprise to learn that the taxman can?t claim costs whenit starts a county court battle to recover debts.

To April 2010, HM Revenue & Customs lodged 10,905 cases against those whohad failed to pay the tax they owed, but now wants an overhaul of the system totack on court costs from April 2011.

Advisers and business groups are largely behind the move, but have demandedthat safeguards are included.

The Institute of Directors, the Civil Court Users Association, CharteredInstitute of Taxation, Professional Contractors Group, the ICAEW and theFederation of Small Businesses are just a handful of those who have contributedto the debate in consultations.

The primary concern among the bodies is that the changes will not heap courtcosts on debts held by people genuinely unable to pay.

?It would not be appropriate for HMRC to be awarded costs where the taxpayeris in hardship or for tax credit overpayments,? respondents said.

Avenues for redress would need to be established in the case of mistakes.

Business groups and advisers also called for the additional costs HMRC canclaim to be fairly minimal ? enough to cover those costs reasonably andgenuinely incurred during the process of lodging the claim, but with theexclusion of any HMRC wage costs.

A warning was also issued against charging a percentage of the sum beingcontested and basing the scale on the amount of work done to secure the victory.

For example, a percentage of the sum claimed, even if the charge were only0.5%, on a tax claim for 1m would lead to costs of 5,000.

Advisers also flagged up the difficulties in calculating and accounting forsmall sums, as this placed an additional administrative burden on all involved.

Some costs are already covered by the state but there is no similar right tocosts for the taxpayer.

All of the issues raised could discourage taxpayers who feel they have agenuine grievance and wish to defend an HMRC court action, the business groupssaid.

The taxman responded that it was not trying to push people further into debt,but only recover what was due from those with the funds to pay it.

?Court action is a last resort for HMRC,? the taxman said.

?It is in no sense a matter of routine and HMRC does not knowingly takepeople to court where it is satisfied that they are unable to pay.?

But the taxman also warned some people prefer to take a gamble and wait tosee if HMRC will take them to court, because they know they won?t have toshoulder the burden of HMRC?s costs if they lose.

?In practice it is cheaper, for the defaulting taxpayer, to be sued by HMRCthan by other creditors,? the taxman added.

?As a delaying tactic, others deliberately wait to be taken to county courtbefore paying, knowing they only face the court fees. Some debtors see these asfurther reasons to leave tax debts unpaid.?

The taxman also said the imbalance also disadvantages people who paid whatthey owed compared to those who hold out.

The move is also being taken to smooth out an uneven playing field.

In England, Wales and Northern Ireland, HMRC cannot claim costs because theperson presenting the case is usually a staffer, not a qualified solicitor.

But in Scotland HMRC employees can claim up to two thirds of the expenseswhich a solicitor might claim.

However, their entitlement to two thirds is not mandatory and variouscircumstances such as the nature of the case, time, earnings lost and complexityhave to be considered.

HMRC intends to continue discussions with the Ministry of Justice and othersto see how this should be implemented.