HM Revenue & Customs has been found by a tax tribunal judge to have terrorised a taxpayer it believed to be selling second-hand cars by issuing him with a series of tax demands totalling nearly £350,000 which the court subsequently found to be completely spurious.
Sebastian Cussens did not work as an employee, nor as a independent contractor or otherwise between 2005 and 2016. Yet, in 2017, HMRC suspected that he had been trading in second-hand cars bought at auction. In fact, he had been suffering from debilitating health problems that had prevented him from working with an employer or as an independent contractor, and had been receiving Enhanced Employment and Support Allowance (EESA) from the Department for Work and Pensions (DWP).
Apparently with zero evidence, HMRC proceeded to estimate his annual taxable earnings and backdated the estimated tax payments to 2005, the year in which he had stopped paying income tax. This resulted in a tax demand for £272,840.87 in taxes for the years 2005-16 being issued to Mr Cussens, along with a penalty charge of £114,842.02 in respect of years 2010-16. Several months later, he was then issued with a further demand for penalties in respect of years 2005-09, totalling £70,102.42, and resulting in a total potential liability to pay estimated taxes of £342,943.11.
The First-Tier Tribunal (FTT) said that HMRC “had taken their estimate of the sales for 2015-16 and deducted 50% for expenses”, scaling back the previous years’ results using the Retail Price Index (RPI).
Judge Geraint Jones, QC, who oversaw the appeal by Mr Cussens, said the Revenue had
“issued assessments almost ‘in terrorem’, in a bid to persuade the appellant to engage properly in the matters under review”.
Cussens had appealed the assessments and related penalties, asserting that he had no taxable income or self-employment income over the period in question.
He did however disclose that he had some modest income from a part share in a rental property, but maintained that the income was “nowhere near to taking [him] over and above the single person annual allowance for any of those years”.
The tribunal noted that Cussens had been uncooperative in responding to HMRC and that some of the responses were provided in part by his father.
The official decision states: “we have formed the opinion that the assessments raised on the appellant [Cussens] are so wild, extravagant and unreasonable that they were not raised for the purpose of making good to the Crown a loss of tax”.
The FTT also advised Cussens to “not behave ostrich-like and bury his head in the sand any further, but to respond, to the best of his ability, with [HMRC’s] need for reliable information”.
The decision comes after the House of Lords Economic Affairs Committee recommended an independent review of HMRC with a view to establishing an independent body to scrutinise HMRC’s operations in a report published last December that was damning of HMRC and HM Treasury’s handling of the 2019 Loan Charge. The controversial contractor tax, that has affected many self-employed people.
Currently, HMRC is answerable only to Parliament via the Treasury and via its chief executive officer, but many commentators have criticised this system, as Treasury ministers have consistently ignored the concerns of MPs raised during Treasury Questions, and financial secretary to the Treasury Mel Stride last year repeatedly refused to appear before Parliamentary select committees to defend HMRC’s approach to implementing the Loan Charge.
Commenting on the Cussens judgment, an HMRC spokesperson said: “We are committed to treating all taxpayers with respect by taking individual circumstances into account. We are carefully considering the judgment.”
The full decision can be found here.
3rd September 2019.