The Court of Appeal has found in favour of a builder who lost £500,000 resulting from a litany of errors by HMRC when it processed his company’s Construction Industry Scheme (CIS) application in 1999. The court recoginsed a duty of care existed, allowing Neil Martin’s claim for damages.

A High Court ruling in 2006 found HMRC had no duty of care when negligence occurs but as a result the court of appeal’s decision, HMRC does have a duty of care and taxpayers may now sue HMRC for damages in certain circumstances.

According to reports, the case will have huge ramifications, because HMRC staff regularly help taxpayers with their returns, applications and claims.

Keith Hobson, of national law firm Halliwells LLP said of the ruling: 'We have encountered clients who will be monitoring this case very closely in relation to their own disputes with HMRC and, in future, other similar actions may be brought.

'This ruling clearly redresses the balance of accountability between business and HMRC. A new, more punitive penalty regime is expected to come into effect in 2009 in respect of tax penalties for errors in certain documents. It is therefore only right that HMRC are seen to abide by the same standards which they seek to impose on the taxpayer.'

What made Martin’s case unique was that a HMRC employee took it upon himself to complete the declaration for a CIS sub-contractors registration card instead of a company exemption, contrary to Martin’s intentions.

HMRC might still appeal the decision in the House of Lords.

Further reading:

Arctic Systems costs HMRC £500,000

Overview: cost-cutting targets for taxman