Taxpayers right to pursue complaints about HMRC, says expert

Data obtained by Pinsent Masons, the law firm behind Out-Law.com, shows that the department admitted to making mistakes in 57% of the 58,110 complaints received through by its internal complaint system in 2010-11.

"The number of cases where HMRC has admitted it got something wrong is remarkable," said George Gillham, a tax expert with the firm. "It suggests that if you make a complaint to HMRC they'll probably decide you're right, at least in part. Many complaints result in HMRC writing a tax liability off or offering compensation – and quite a lot of money can be at stake."

According to the data, complaints made by individuals or small businesses directly to the department, rather than via the tribunal system, tend to be about unreasonable delays, mistakes and poor treatment by HMRC staff. Although taxpayers who wish to dispute the amount of tax that they owe will generally use the tribunal system to settle their case, mistakes and delays can also lead to unexpected tax charges. These charges can be written off by HMRC if a complaint is successful.

Complaints challenging errors or the treatment of taxpayers by HMRC will be handled internally by the department in the first instance, while complaints which are unsuccessful at this stage can be appealed. Appeals are handled internally by HMRC. Unsuccessful appeals can be referred to the independent Adjudicator's Office, which according to data obtained by Pinsent Masons upheld 53% of the complaints reaching this final stage wholly or in part in 2011-12.

"HMRC is prone to making errors – it's unfortunate, but it's true," said Gillham. "This is partly down to budget cuts leading to de-skilling on the frontline, but it's also to do with the massively increased complexity of the tax system over the past fifteen years."

The huge number of different taxes for which taxpayers can now be liable can lead to further mistakes by the department, Gillham said, particularly where a decision in relation to the amount of one tax owed affects the taxpayer's liability in another area.

"Even if HMRC makes a correct decision about someone's income tax liability, that decision will have all sorts of consequences for pensions, national insurance contributions and more," he explained. "A lack of comprehensive training for frontline staff means they can struggle to look at things 'in the round'. They change one thing but don't – or can't – check to see what else that affects."

In addition to errors made by frontline staff, the approach of HMRC's debt collection agency the Debt Management Office (DMO) has led to an increasing number of complaints, according to the data. The DMO's "heavy-handed" approach can be "upsetting" for taxpayers targeted by the office, Gillham said, particularly as the DMO is charged with retrieving the tax requested by HMRC regardless of whether a mistake has been made.

"DMO aren't there to negotiate, so even if HMRC has made a mistake it won't back off until it has what it's been asked to retrieve or been informed of a mistake by HMRC," he said. "It's a very unpleasant and distressing experience. What the data can't tell us is the effect that HMRC's increasing use of private sector contractors for debt collection has had on complaints, but anecdotal evidence suggests taxpayers' experiences with these contractors are even worse than with the DMO."

The figures also showed that the Adjudicator's Office has upheld an increasing number of complaints and awarded a steady increase in compensation over the seven years since HMRC was formed from the merger of the Inland Revenue and HM Customs and Excise. Gillham said that the figures showed that it could be "worth it" to keep pursuing a complaint against HMRC through the whole complaints process.

"You can sometimes get back the costs incurred fighting an unreasonable stance taken by HMRC or get a tax liability written off," he said. "The increase in successful complaints to the Adjudicator and the huge increase in recommended payouts for HMRC suggest that the HMRC customer experience is getting worse, not better - for performance to get worse over time is incredibly disappointing."

In 2005-06, the first year after the merger, the Adjudicator's Office upheld 44% of taxpayer complaints and recommended HMRC pay compensation worth £100,022 while giving up £370,586 in demanded tax. According to the latest available figures, the 53% of complaints upheld in 2011-12 resulted in £363,954 recommended compensation and surrendered tax demands worth £986,782.