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Tax and the rule of law

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Cabinet minister Michael Gove’s refusal to confirm that the government would abide by legislation designed to stop the UK leaving the EU without a deal has raised the spectre that the government regards itself as above the law. This threat to erode the rule of law at the highest level horrified voters and no doubt bolstered the 1.7m signatures on the petition not to prorogue or dissolve Parliament unless and until the article 50 period has been sufficiently extended or the UK’s intention to withdraw from the EU has been cancelled. 

The rule of law implies that every person is subject to the law, including people who are lawmakers, law enforcement officials and judges. As soon as the rule of law breaks down, mutual trust and cooperation are lost.

When it comes to taxes, mutual trust and cooperation are vital. An IFS report (Dimensions of tax design, see noted that, just as large companies increasingly consider tax issues as part of corporate governance, so too must tax administrations consider governance and reporting issues. One of the key reasons for this is if there is to be mutual trust and co-operation on the part of taxpayer, tax agent, and tax official, then tax administrations must act and report in a transparent manner. It is not a one-way street.

This mutuality of trust is even more important when it comes to dealings between HMRC and individual taxpayers. And yes, you’ve guessed, it’s not been a good month there either.

The First-tier Tribunal published its decision in the case of S Cussens v HMRC [2019] UKFTT 0543 (TC) in which the tribunal had to consider the use by HMRC of its statutory power to make assessments using its ‘best judgement’ when accurate figures are not available. 

While the tribunal recorded that Mr Cussens ‘behaved ostrich-like and buried his head in the sand rather than engaging with the issues’, it was also recognised that he received benefits from the Department of Work and Pensions for at least some of the 12 tax years in question because he was unfit to work because of physical or mental impairments.

Looking at the assessments made by HMRC, with tax and penalties totalling more than £340,000, the tribunal accused HMRC of trying to frighten the taxpayer: ‘if any judgement whatsoever was brought to bear upon this issue, it certainly cannot be described as “best”. It smacks of being a situation where, because the appellant had been uncooperative and was sticking his head in the sand, the respondents decided to issue assessments almost ‘in terrorem’, in a bid to persuade the appellant to engage properly in the matters under review… In conclusion, we have formed the opinion that the assessments raised on the appellant are so wild, extravagant and unreasonable that they were not raised for the purpose of making good to the Crown a loss of tax and so were not authorised by [the relevant legislation]’. The tribunal then quashed all the assessments and the associated penalties. 

There are no winners here. The government and HMRC must act quickly and decisively to restore public confidence that they will uphold the rule of law. Imagine what would happen if taxpayers en masse chose which tax demands to pay and which to ignore. Fiscal and economic chaos would overwhelm the country.
Issue: 1455
Categories: In brief