Ruling paves way for taxpayers to sue HMRC

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