Tribunal finds HMRC's actions unconscionable

16 September 2015.

In John Clark v HMRC[1], the First-tier Tribunal (FTT) has found that special relief, in terms of paragraph 3A, Schedule 1AB, Taxes Management Act 1970 (paragraph 3A), ought to have been granted to a taxpayer who suffered from serious learning difficulties.


The taxpayer was registered with HMRC for self-assessment in 2003 by his wife. Having failed to file returns, HMRC issued tax Determinations for 2002/03 and the five subsequent years in the total sum of £17,779.94. The taxpayer claimed that it would be "unconscionable", for the purposes of paragraph 3A, for HMRC to seek payment of the tax sought in the circumstances of his case.  Paragraph 3A(3), provides:

"(3) … the Commissioners are not liable to give effect to a claim made in reliance on this paragraph unless conditions A, B and C are met. 

(4) Condition A is that in the opinion of the Commissioners it would be unconscionable for the Commissioners to seek to recover the amount …”.

HMRC rejected the taxpayer's claim and he appealed to the FTT.

The taxpayer suffers from severe learning difficulties. In a Report prepared for the purpose of the appeal by a chartered educational psychologist, it was concluded that the taxpayer has "an intellectual level of a primary school child". The taxpayer suffers from dyslexia, and other learning difficulties which affects his ability to read, write and spell.

At the end of 2003, the taxpayer separated from his wife and he became solely responsible for the care of their daughter who was, at that time, of school age. Following separation from his wife, the taxpayer suffered from depression. It was around this time that he stopped working and during the period between then and 2013, he worked only periodically, earning very little income, all of which was accounted for through PAYE.

In his evidence (given with the assistance of a third party), the taxpayer informed the FTT that he did not recall receiving tax returns or demands for payment. He indicated that he would not have appreciated the implications of such documents if he had received them.

He admitted that he had received what he described as a "charge” from HMRC in February 2010, however, he did not understand its significance.

With his daughter's assistance, he had written to HMRC in 2011. The letter was handwritten by his daughter. It was returned by HMRC who did not act upon it. They merely advised that it had been sent to the wrong department.

The taxpayer later attended HMRC's offices on three occasions. However, he was unable to communicate with the staff as they did not appreciate that he had learning difficulties.

The FTT's decision

HMRC did not provide any witnesses. HMRC's representative at the appeal hearing argued that the determinations had been made to the department's "best judgement". Since no written records had been retained by the taxpayer it had made estimates as to the turnover of his "business" and profit.

In HMRC's opinion, the test contained in paragraph 3A was not met. It argued that the test should be applied at the date of the determinations and that if Returns had been submitted on time the determinations would have been set aside. It argued that the taxpayer had had three years in which to do this but he had failed to do so. The determinations had therefore been correctly raised.

HMRC also argued that dyslexia was a condition of "varying degree" and that it did not absolve a sufferer from his tax obligations. It maintained that HMRC had acted properly in this case and that special relief was not intended to benefit those who chose not to engage with HMRC. 

The taxpayer was pressed in cross-examination about the apparent selectiveness with which he had sought the help of his daughter and younger son in respect of other matters, such as the payment of child benefit, the taxpayer indicated that he felt embarrassed by his literacy problems and that he had sought to keep from his children the extent of the problems he suffered.

The FTT found the appellant to be "an entirely credible witness", "frank, candid and utterly lacking in guile".

The FTT applied and expanded on the definition of "unconscionable", contained in William Maxwell[2], defining it as "completely unreasonable, unreasonably excessive, or (we would add) inordinate, or outrageous". The FTT said that this test had to be applied at the time and in the context in which the recovery of the tax contained in the determinations was being contemplated. 

HMRC's decision that the recovery of the determinations was not unconscionable was found wanting. The FTT commented that HMRC's reasoning was "too narrow, inadequate, and lacking in consideration of the appellant’s peculiar vulnerability". In the FTT's view, HMRC ignored the taxpayer's inability to engage with the tax authorities and made no attempt to recognise, or make concession for, his vulnerability.

HMRC's response to the taxpayer's letter in June 2011 and attendance at HMRC's offices was "inadequate and unsatisfactory". The FTT contrasted HMRC's behaviour with that of officials dealing with child benefit payments made to the taxpayer who "seem to have been more supportive".  In the circumstances of the case, the FTT found HMRC's refusal of the claim unreasonable and allowed the taxpayer's appeal.  


The obvious question which arises following a case such as this is: why did HMRC pursue a person with severe learning difficulties and force him to give evidence before the FTT, where he was subjected to cross-examination by HMRC's representative? Contrast the investigating officer, who did not give evidence.

The lack of empathy shown by HMRC towards such a vulnerable member of society stands as a damning indictment upon the organisation as a whole. Questions should be asked at the highest level within HMRC as to why such a case was allowed to progress all the way to the FTT. HMRC are quick to issue press releases when they succeed before the FTT, but it is unlikely that it will be seeking publicity for this decision.

For the full judgment please click here.

[1][2015] UKFTT 324 (TC).

[2] William Maxwell v HMRC [2013] UKFTT 459 (TC).

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