No matter how badly HM Revenue and Customs (HMRC) administer your affairs and what losses this may cause you, you have no right to claim damages. That is the depressing message resulting from a recent case in which a builder from Cumbria was denied a claim for damages against HMRC.
Neil Martin worked as a building subcontractor who, as many do, decided to incorporate his business. This meant that he had to get his subcontractor’s certificate (SC60) transferred into the name of his company. This is normally not an extended process, which is a good thing as without an SC60 payments to the subcontractor are made net of income tax as opposed to gross.
Despite his following normal procedures, owing to a catalogue of errors by HMRC Mr Martin’s application for an SC60 in the name of his company was not granted until September 1999 – three months after the application was made. As this caused him significant cash-flow difficulties and financial loss, Mr Martin commenced action against HMRC in May 2005, seeking compensation for his losses resulting from HMRC’s maladministration of his application. He had suffered losses estimated at £400,000. HMRC had offered him £300 as an ex-gratia payment by way of compensation.
Mr Martin’s case was that the Income and Corporation Taxes Act 1988 (ICTA 1988), which contained the legislation administering the SC60 scheme, allowed compensation to be paid. The Act does provide an appeal process if an SC60 is cancelled or refused, but does not provide for compensation when cancellation or refusal occurs. Since the right to compensation is discretionary, the court held that Mr Martin had no right to bring a claim on that basis. Mr Martin also argued that he was entitled to compensation as a result of HMRC breaching the duty of care it owed to him. The court, however, ruled that if the legislation contains no statutory liability to pay compensation, the intention must be that no duty of care is created which would apply to HMRC.
However, that still left the tax officer responsible for processing Mr Martin’s new SC60 application in the firing line. He could be found liable if Mr Martin’s loss was foreseeable and was a direct result of a breach of a duty of care, if it would be ‘just, fair and reasonable’ for the finding that a duty of care existed to be made. In the opinion of the judge, if the tax officer did have such a responsibility, it was not undertaken voluntarily and it would be unfair to impose a duty of care on the tax officer.
Accordingly, in spite of the judge’s finding that HMRC had been negligent and in breach of its statutory duty under ICTA 1988, Mr Martin was not entitled to any compensation.
It has been reported that Mr Martin intends to appeal against this decision.
