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Court Ruling Allows HMRC To Be Sued For Negligence

by Rogin Pilgrim,, London

30 October 2007

The Court of Appeal in London has backed a taxpayer in his attempt to extract compensation from HM Revenue & Customs for administrative errors and delays that he claims nearly sunk his business.

The three appeal court judges ruled unanimously on October 25 that there was no reason in common law why HMRC should not have a duty of care towards taxpayers when administering their tax affairs, although they disagreed with the appellant, builder Neil Martin, that the department has a statutory duty of care towards taxpayers.

Martin took HMRC to court after a series of blunders by employees in the department that led to a three month delay in the issuance of a sub-contractors certificate when his business was expanding in 1998. Without this certificate, Martin could not be paid by the main contractors who employed him, and he claimed that as a result of this, he suffered a loss of half-a-million pounds, and faced a tax bill of GBP250,000. The mistake that caused the delay almost ruined his business, Martin argued.

The ruling partially overturned a decision by the High Court, and could open the way for taxpayers who have suffered losses as a result of administrative errors by HMRC to sue the department for damages. However, tax advisors have given a cautious welcome to the verdict because the new precedent could be difficult to apply to other cases of negligence, since the facts in the Martin case are so unique they could be difficult to apply in the future. Also, HMRC still has recourse to seek leave to appeal the latest ruling in the House of Lords.

Nevertheless, the appeal court decision was welcomed by Professional Contractors Group, which campaigns for fairer treatment of freelancers and contractors by HMRC.

"This is a complex judgment and, like Neil, we are studying it closely to work out its exact implications. But in the meantime we can say that it seems to be, at the very least, a step in the right direction," PCG's managing director John Brazier commented.

"PCG still believes that a duty of care should be placed on HMRC so that its aggressive and often inept investigations of innocent taxpayers can no longer cause them material harm. We are looking at (the) judgment to work out how close it takes us to this being the case, and call on the Government to finish the job by establishing a full duty of care if necessary," Brazier concluded.

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