HM Revenue & Customs

6. Mr I complains HMRC failed to give him financial information that was vital to his attempt to settle a debt with it even though it had agreed to do this in September 2020. He also complains HMRC was responsible for delays in responding to requests from his representatives. He says these delays inevitably led him to miss his deadline of 30 September 2020 for agreeing a settlement on his alleged debt of over £200,000.

7. Mr I tells us he believes HMRC deliberately ignored his efforts to settle the debt with the aim of maximising the revenue it got through the loan charges. He also complains HMRC’s responses often failed to answer the points he had put forward in his complaints.

8. Mr I complains the scheme he entered into was legal and this was the only legal option available to him to deal with his tax affairs. He complains HMRC did not inform him about the loan charge and he simply came across it by accident.

9. He also complains that, to settle matters, HMRC insists he sign a document admitting he has not fulfilled his legal obligations, which he says would force him to admit he has done something wrong. He tells us this goes against his human rights as HMRC is asking him to incriminate himself.

10. Mr I complains HMRC has refused to recognise evidence supplied to it showing who his employer was during the period under consideration. He tells us this is not in line with the Finance Act 2017, which says HMRC should pursue the employer first.

11. Mr I also complains HMRC has refused to recognise the unavoidable expenses he incurred as a pilot during the years 2009-2015 and he has no other means to reclaim them. He also complains HMRC has misrepresented his position to Parliament, suggesting that he has benefited from the loan scheme when he clearly has not.

12. Mr I further complains HMRC has used psychological manipulation techniques from a third-party company providing services to try to extract payment from him. He did not consent to this.

13. Mr I tells us HMRC has made him feel like a criminal and the constant worry he has experienced through not being able to resolve the situation has led to significant stress. He also tells us the threat of losing his home and the impact of that on his family is overwhelming.

14. Mr I tells us HMRC asking him to sign the document is causing worry and distress.

15. Mr I would like HMRC to recognise he did nothing wrong by entering into the disguised remuneration loan scheme and no other legal options were open to him to manage his tax affairs.

16. Mr I would like HMRC to recognise it did not give him the financial information he was supposed to receive.

17. Mr I would like HMRC to withdraw its suggestion he sell his home to settle his affairs and wants financial compensation for the distress caused by HMRC’s behaviour to him and his family.

18. Mr I was a zero-hours contract pilot for an airline company in 2009. He tells us he was uncertain about how he should register to pay his taxes. A zero-hours contract is one in which the employer does not guarantee the individual any hours of work. They offer the individual work when it becomes available and the individual can accept or decline the work as they prefer.

19. Mr I understood he was not able to register as self-employed and he could not form a company. He tells us he contacted two tax professionals and was advised to contact HMRC and ask for advice. He had been made aware of a loan scheme that might suit his needs, and he tells us he went over the details of the scheme with HMRC on the phone. He says HMRC told him the scheme was legal, the promoter was reputable and the other options he had considered would not be suitable.

20. HMRC later determined the scheme Mr I had entered into was a disguised remuneration loan scheme. The HMRC website explains:

‘Disguised remuneration loan schemes are used to avoid paying Income Tax and National Insurance contributions [NICs]. You’re classed as having a disguised remuneration loan when you receive payment for work or services in the form of a loan or other form of credit in a way that means it is unlikely to be repaid.

If you received a disguised remuneration loan or credit on or after 9 December 2010, it may be liable to a tax charge, unless you or your employer have previously accounted for all tax and [NICs] due on the income received as a loan.’

21. This tax charge is known as the ‘loan charge’.

22. HMRC introduced a deadline of 5 April 2019 to voluntarily settle tax owed to it. This deadline allowed recipients of disguised remuneration schemes to:

• come to a settlement with HMRC on the amount of tax they owed • set up a payment plan over 5-7 years or more • pay a lower rate of tax on any loan charge and • avoid any extra costs if the scheme in question moved to litigation.

23. The loan charge applied to disguised remuneration loans made on or after 9 December 2010 that were still outstanding on 5 April 2019.

24. Paying the loan charge does not resolve the underlying tax dispute with HMRC for the years in which loans were made. Tax years that are subject to an open enquiry or assessment still need to be resolved, either by a settlement with HMRC or through litigation.

25. All disguised remuneration loans within the scope of the loan charge that were outstanding on or before 5 April 2019 are treated as employment income received on that date or trade profits in the tax year 2018 to 2019, depending on the type of scheme used.

26. This means loans outstanding on 5 April 2019 incur an Income Tax and NICs charge as if they were earnings or profits received in the tax year 2018 to 2019.

27. As part of the loan charge review, an individual was able to opt to spread their loan balance evenly over three tax years (2018 to 2019, 2019 to 2020 and 2020 to 2021). They had to apply for this on or before 30 September 2020.

28. The loan charge works by adding together all outstanding loans and taxing them as income in one year. If the individual settles their tax affairs before the loan charge arises, they pay tax at the rates applicable to the years in which they received the loans.

29. When he found out about the loan charge in January 2019, Mr I contacted HMRC to arrange a settlement and he made some initial advance payments. He tells us HMRC then went quiet.

30. In June 2019 he received a demand for £205,000 that he says did not take account of any expenses he had incurred as a pilot or any of the advance payments he had made. He asked his tax advisers to help determine a reasonable amount for his deductions. He said HMRC went quiet again and essentially ignored him and his tax adviser.

31. In May 2020 he received a letter asking whether he still wanted to settle and saying he had to do so by 30 September 2020 to avoid having to pay the loan charge. Again, he says the figures mentioned did not take account of expenses and payments. He felt he was not making progress and asked his MP to help. This began the complaint procedure.

32. During the complaint procedure Mr I was told he would receive a settlement figure within the next few days. HMRC set this out in a letter dated 14 September 2020. However, HMRC did not provide those figures before the 30 September 2020 deadline.

33. Mr I tells us he was left with no option but to agree with HMRC’s proposed settlement figures or pay the loan charge.

34. He complained to the Adjudicator’s Office (AO) and that complaint was partly upheld. He then brought his complaint to us.

37. We have considered Mr I’s complaint that HMRC did something wrong. However, we cannot consider whether Mr I’s legally owes tax of a particular amount.

38. The courts and tax tribunals are the appropriate route to consider questions about how much income tax he owes and whether HMRC can legally try to get the money it believes he owes. We cannot consider matters that are more appropriate for the courts.

39. Only the courts can consider questions about how much tax Mr I owes or whether laws that give HMRC additional powers to recover money relating to disguised remuneration loan schemes are fair. We cannot consider these questions. Because of this, the views we set out below do not refer to any matters that can be appealed in a tribunal or court. Our findings only relate to Mr I’s complaint HMRC did something wrong.

40. Mr I told us he asked HMRC in 2009 about his status for filing his taxes and it told him he could not file as self-employed. He says HMRC told him the scheme he was considering (which he later signed up to) was not illegal.

41. He tells us HMRC should have told him he should not engage with that type of scheme. He says HMRC must take some responsibility for the situation he finds himself in; he asked for its help and he never intended to avoid tax. He just wanted to find a way to register when none seemed available to him. Mr I says HMRC should have told him these schemes were a problem much sooner than it did and should not have allowed disguised remuneration loan schemes to run in the first place.

42. We have no direct evidence of contact between Mr I and HMRC in 2009. We only have Mr I’s account of what was said, which he provided to us as part of this complaint. Having considered this carefully, we are not able to give any view on what is likely to have been said at that time.

43. However, we have been able to consider how HMRC looked at this part of the complaint. In its response to the complaint HMRC said the scheme Mr I had chosen was registered as a tax avoidance scheme (under disclosure of tax avoidance scheme (DOTAS) rules) and so relevant information about the scheme would have been available to him. It noted Mr I did hold a DOTAS reference number for the scheme, so he would have been able to see the scheme had been registered as a tax avoidance scheme.

44. Mr I was particularly unhappy HMRC told him ‘despite the claims promoters may have made, our view is that disguised remuneration schemes have never worked’. He told us he felt shocked and very upset to read this because he felt this did not reflect the information HMRC had given in 2009 and this statement was an attempt to manipulate him into believing he had made a mistake.

45. Mr I also said the statement ‘disguised remuneration schemes have never worked’ is one HMRC has made publicly several times in recent years.

46. We searched the online National Archive to look at the historical records. We can see in 2010 HMRC said it considered disguised remuneration loan schemes to be tax avoidance activity and ‘ineffective’ (Spotlight 5). In 2011, it said legislative changes would ‘put beyond doubt that such arrangements or schemes [as disguised remuneration] do not work’. It opposed the use of such schemes in the courts in 2002 and 2008.

47. Mr I told us HMRC accepted that some of its own contractors had used tax avoidance schemes and said this shows it was therefore incorrect for it to claim the schemes ‘did not work’. This relates to the All-Party Parliamentary Group’s enquiries into the loan charge and the questions it asked HMRC in a letter dated 16 February 2021.

48. HMRC’s response to Mr I said there had been occasions when individuals working for HMRC had used disguised remuneration loan schemes. It said it was possible other HMRC contractors may use such schemes, despite the checks HMRC has in place to make sure contractors are complying with the law. It said it would end their employment if it discovered this and it investigated all contractors in the same way, whether they worked for HMRC or not.

49. We have not seen any evidence that HMRC’s explanation was inaccurate. HMRC recognised use of these schemes is widespread among contractors and it has arrangements in place to try to identify and stop this practice, irrespective of who the employer is. We do not see any evidence that HMRC’s statement about its views on the effectiveness of disguised remuneration loan schemes is flawed or disingenuous.

50. We also appreciate HMRC thinks Mr I’s use of disguised remuneration loan schemes meant he failed to meet his legal obligation to pay income tax. The Finance Act 2016 and the Finance (No. 2) Act 2017 are intended to give HMRC additional powers to resolve the situation, in which more than 40,000 individuals had outstanding enquiries as a result of using mass-marketed disguised remuneration loan schemes. They also set out HMRC’s powers to impose a loan charge if the loans have not been repaid or a settlement reached.

51. HMRC’s ‘Litigation and Settlement Strategy’ sets out how HMRC will resolve tax disputes. It explains it cannot write off tax it believes is legally owed. We understand from the Acts and the Strategy that Mr I’s dispute about what he should pay will need to be decided in the courts, as the courts are the only forum that could decide Mr I does not have an unpaid income tax debt.

52. Shortly after the 2017 Act came in, HMRC wrote to over 40,000 individuals and businesses that used the loan schemes. Having reviewed HMRC’s estimates for the period 2017-2018, we understand approximately 41,000 individuals and around 3,000 employers were using a scheme of this type.

53. We cannot know whether HMRC wrote to Mr I, as the letter would not have remained on his file long enough. We do know the scheme provider emailed its clients who were using disguised remuneration loan schemes to let them know about the loan charge at some time in the first half of 2018, though again, we do not have evidence of whether Mr I received an email.

54. What we can say is the payment of taxes and associated charges is the responsibility of the individual, whether the individual deals with their own taxes or has someone else do it for them. It was Mr I’s responsibility to make sure he knew what rules applied to his circumstances.

55. Having carefully considered the above, we have not seen any evidence HMRC failed to act in line with its Charter commitment to ‘give you accurate, consistent and clear information’ or our Principles of Good Complaint Handling in the way it thought about and responded to Mr I’s complaint, as in doing so it provided ‘honest, evidence-based explanations and [gave] reasons for decisions’.

56. In respect of Mr I’s concerns about misrepresentation before Parliament, he tells us he was made out to have benefited from the disguised remuneration loan scheme. He says the current situation proves that was never his intention.

57. There are differing views on why a person might use a disguised remuneration loan scheme. One is that it is a way to avoid paying some income tax. This is the main view HMRC takes. Avoiding income tax was a clear benefit of these schemes until HMRC introduced the loan charge.

58. We appreciate Mr I has a different view. This in itself is not a sign HMRC did something wrong in publicly sharing its own position. We have not seen anything to suggest HMRC failed to act in line with our Principles of Good Administration, which say ‘public bodies should be open and truthful when accounting for their decisions and actions’.

59. Mr I complains the settlement process does not factor in the responsibility of any other parties and assumes the burden of tax falls entirely on him. He tells us HMRC should be seeking to recover any unpaid tax from the businesses that sold him the scheme.

60. He tells us he gave HMRC details of his employer during the period in question, but it has not recognised that information and refused to pursue the employer for the unpaid tax.

61. Mr I mentions the judgement in the case Rangers vs HMRC Supreme Court, which found the employer needed to pay its staff’s unpaid income tax. He says this showed he was not the one who should pay the tax.

62. HMRC addressed this by saying: ‘PAYE [Pay As You Earn] liabilities fall on the employer in the first instance. This is no different under disguised remuneration arrangements. Disguised remuneration schemes are contrived arrangements and sometimes we cannot reasonably collect the tax from an employer through PAYE. This could be when an employer is based offshore or no longer exists.’ (PAYE is a system through which employers pay income tax and NICs directly to HMRC).

63. The airline Mr I worked for made him change his employment status from employed to self-employed. He was then contracted to work for the airline through an intermediary organisation in the UK. He tells us HMRC should get the money owed from the intermediary organisation.

64. HMRC tells us the employment scheme Mr I used was based offshore. If an employer is offshore, there is no obligation to operate PAYE on the employment income loan (in line with s689(4A) of the Income Tax (Earnings and Pensions) Act 2003). The result is that the employee, not the employer, has to pay the loan charge directly. Part 47181 of the HMRC ‘Employment Income Manual’, which applies here, says:

‘Where a third party takes a relevant step in relation to an employee who has a non-UK based employer, the provisions of section 689 normally apply to require the employee’s end user or another UK based third party to operate PAYE on the value of the relevant step.

For the purposes of the 2019 loan charge, however, this requirement is disapplied. Where an employee has a non-UK employer and the relevant step is one which arises because of the application of the loan charge provisions, there will be no requirement on a UK entity to operate PAYE. The employee will have to include the value of the loan charge relevant step in their personal tax return’.

65. Mr I signed a contract with the offshore company and then provided services to an intermediary company on the basis that the offshore company was his employer. The intermediary company paid the offshore company for Mr I’s services. HMRC concluded Mr I owed the loan charge on the loans he received from December 2010.

66. Mr I received a salary. Income Tax and Class 1 NICs were deducted from this. The offshore company deducted management charges and he then received the remainder of his fees from the offshore company. These were intended to be non-taxable.

67. These arrangements are typical of the contractor industry. The aim is the contractor gets as much of their fee as possible in a non-taxable form. The scheme Mr I used says contractors can expect to get 82% of their contract value.

68. In the scheme Mr I used, UK-resident contractors working in the UK join a partnership in the Isle of Man and agree to provide their services to the partnership. The partnership provides their services via an offshore company that in turn provides services to end users in the UK (and overseas), sometimes via UK agencies.

69. The contractors apply to become partners, sign a partnership agreement and are treated as partners. They receive a combination of profits from the partnership (typically £12,000 a year) and loans from a partnership benefit trust. The loans are interest-bearing and repayable on demand, but interest is accrued and the loans are not repaid.

70. The design of the scheme is intended to get around the Income Tax (Earnings and Pensions) Act 2003, as there is no employment. HMRC explained it had seen no evidence to contradict this.

71. On that basis, the scheme is regarded as a trading income arrangement and therefore its users are subject to the trading income loan charge. The legislation for this can be found at Schedule 12 of the Finance (No 2) Act 2017:

‘A loan or quasi-loan applies to be treated as a relevant benefit for the purposes of sections 23A-23H of the Income Tax (Trading and Other Income) Act 2005. Conditions A-E at Section 23A are met so Section 23E applies. It relates to loans paid between 9 December 2010 and 6 April 2017 that remain outstanding on 5 April 2019 (Schedule 12, 1(2))’.

72. HMRC told the UK Parliament’s Economic Affairs Committee hearing on 15 July 2021 it pursued employers if that was the correct line of enquiry in a particular case, and approximately 80% of recovered money had come from employers. It also explained there are some circumstances where an employer is no longer in business or outside HMRC’s jurisdiction.

73. It also told us it was targeting scheme operators. HMRC referred to its ‘Tackling promoters of mass marketed tax avoidance schemes’. This says HMRC has taken action against several scheme operators and is working to pursue scheme promoters. It does not name the operator of the scheme Mr I used, and we understand he would like to know action has been taken against that operator specifically.

74. HMRC says confidentiality rules mean it cannot disclose information about specific operators. We can see HMRC has acted in line with our Principles of Good Complaint Handling by giving Mr I a clear decision and explanation on this matter. We cannot say whether HMRC has acted in line with the Data Protection Act 2018 and any other applicable data protection legislation. If Mr I is looking for such a view, he may wish to raise his concerns with the ICO.

75. HMRC’s explanations seem to be in line with our Principles of Good Complaint Handling, which say: ‘[Organisations should] be open and honest when accounting for their decisions and actions. They should give clear, evidence-based explanations, and reasons for their decisions’. They also say: ‘[Organisations should] handle and process information properly and appropriately, in line with the law and relevant guidance. So, while their policies and procedures should be transparent, public bodies should also respect the privacy of personal and confidential information, as the law requires’.

76. HMRC has explained why it was not able to pursue Mr I’s employer, which was a company based in an offshore location. The intermediary based in the UK was not the de-facto employer as it paid the scheme operator rather than Mr I directly. The decision to pursue Mr I directly appears to be in line with the legislation relating to both offshore companies and the later loan charge. We have not seen any signs HMRC did something wrong.

77. As set out previously, any concerns about whether Mr I owed unpaid tax must be raised with a tax tribunal, so we will not comment on those matters here.

78. Mr I tells us there were several long delays in HMRC’s responses before 30 September 2020. He says HMRC was delaying to force him to either settle on its terms or pay the loan charge. He added that by not answering the questions he asked, HMRC only provided a partial response. This meant he or his advisers had to contact HMRC again.

79. We have considered the delays, which Mr I tells us took place after HMRC sent him the proposed settlement figure on 12 June 2019. We have seen evidence Mr I responded to this proposed figure in June 2019 and told HMRC he believed the calculation was incorrect, as it had not taken account of factors such as expenses and payments he had already made.

80. The next communication we can see is from Mr I’s advisers in an email dated 12 July 2019 telling HMRC it had still not explained Mr I’s settlement calculation in detail. We have not seen any evidence HMRC replied to this email or the initial request.

81. We can next see an email from Mr I to HMRC on 6 August 2019, letting it know he had new advisers. He then emailed HMRC again on 25 August 2019 to let it know he had returned to his address in the UK to find several communications waiting for him. He said he was disappointed as he had previously explained he would be out of the country and all communications should have been sent to his advisers. Mr I said he would send all the communications to his advisers for them to respond to HMRC.

82. On 27 August 2019, his advisers wrote to HMRC introducing themselves and pointing out where they believed there were errors in the way the proposed settlement figure had been reached. In particular, they sought confirmation from HMRC about Accelerated Payment Notices (APN) Mr I had already paid. An APN is a requirement to pay an amount on account of tax or NICs. The advisers also put forward a deduction for expenses Mr I had accrued in his job and challenged the interest amount HMRC said had accrued.

83. On 3 September 2019, HMRC contacted the advisers and asked them to send revised calculations so HMRC could consider them.

84. On 24 September 2019, Mr I’s former advisers again asked HMRC for information they had previously asked for. HMRC responded to them and explained it understood they were no longer acting as Mr I’s advisers as of 6 July 2019.

85. On 17 October 2019, HMRC wrote to Mr I and his new advisers to explain the government had announced a review of the disguised remuneration loan scheme and asked Mr I whether he wanted to wait until that review was over before moving ahead with the settlement process. If he chose to wait he did not have to respond, but if he did not want to wait he did. We have not seen any evidence he did respond.

86. On 9 January 2020, Mr I’s advisers wrote to HMRC asking about expenses and income again. There is no evidence HMRC responded to this.

87. On 4 May 2020 Mr I received a letter asking if he still wanted to settle the outstanding amount he was said to owe HMRC. The letter asked for a response by 3 June 2020 and said he had until 30 September 2020 to avoid having to pay the loan charge associated with the debt. 30 September 2020 was the deadline for settlement set in the Finance (No. 2) Act 2017.

88. In response, Mr I’s advisers wrote to HMRC on 11 May 2020 and questioned the figure it had reached, pointing out it had not taken account of the previously mentioned APNs and asking it to remove the interest and penalties.

89. His advisers wrote again to HMRC on 8 June 2020 and confirmed Mr I wanted to settle. They laid out details of the years they intended to settle and asked HMRC to account for a range of expenses relating to his role, such as uniforms, headsets, etc. that he needed to buy himself. Mr I and his advisers had already asked for this in January 2020.

90. Mr I has told us his advisers made a number of calls on his behalf to HMRC in 2020 to try to get answers to the questions asked, which they did not manage to do.

91. The advisers also asked HMRC to extend the 30 September 2020 deadline on the grounds HMRC had not replied to them and Mr I and Mr I did not have any income at that time.

92. The advisers received a detailed response from HMRC dated 4 August 2020 in which it accepted some of the claimed expenses and explained its position on the other aspects included in the advisers’ letter of 8 June 2020, which contained queries regarding or challenging the amount of interest and loans before 9 December 2010. It reiterated the 30 September 2020 deadline remained. Therefore, at this point in time, HMRC had considered everything Mr I and his advisers had asked of it and provided a response.

93. Mr I followed up with several emails and another letter to HMRC in early August 2020, and on 21 August 2020 the Counter Avoidance Team (CAT) replied to his advisers to explain that because Mr I had said he wanted to include the loans received before 9 December 2010 in the settlement they had calculated the amount on that basis. Mr I had also written a letter complaining about the handling of his attempts to reach a settlement and he received a response to that on 21 August. His MP also contacted the Chief Executive at HMRC to ask questions on his behalf.

94. On 11 September 2020 the case was reviewed, but due to the high number of settlement cases being dealt with before the 30 September 2020 deadline, HMRC did not send Mr I any more correspondence until 27 November 2020, when it sent a letter of offer. The covering letter only provided the following statement about expenses:

‘The expenses you’ve claimed: We’ve looked at expenses you’ve claimed and have allowed some of the amount you claimed. The enclosed calculations include the amount we’ve allowed’.

95. We asked HMRC about the expenses and it told us in its Tier 2 letter of 14 September 2020 it had said it would contact Mr I about its position on the expenses. However, it had failed to send that letter.

96. Putting aside the delay brought about by the pause to consider the government review, it is clear there were some short delays in Mr I’s advisers providing a detailed breakdown of the claimed expenses and other things it wanted HMRC to take account of. However, the bulk of the delays are attributable to HMRC. Its Charter says it will respond in a ‘reasonable time’, though there is no clear definition of ‘reasonable’ or further explanation of what that looks like in practice.

97. We asked HMRC about the almost one-year delay in responding to the representative’s letter of 27 August 2019. It told us:

‘This was due to the pause whilst the Loan Charge review took place (starting September and finishing in December 2019) and waiting for the government’s response. HMRC re-started the settlements in April/May 2020. A decision was made that, due to the number of customers involved in disguised remuneration and with settlements to be finalised before the 30 September 2020 deadline, settlement choices forms would be issued to all customers without checking customers’ records for any additional information or for any correspondence that had come in before or since the settlement process was paused. The thinking was that we gave customers the choice to settle using the figures provided or if they did not wish to settle or disagreed with any of our figures, the settlement choices form gave them the opportunity to do this. We issued the settlement choices form to Mr I on 4 May 2020. Following receipt of the Tier 1 complaint, we wrote in August 2020 to address the points in the August 2019 letter’.

98. In its Tier 1 complaint response HMRC recognised it had not given Mr I the level of service he was entitled to and apologised for the delays in responding. It offered a payment of £150 to apologise. It also asked him to provide details of any costs he had incurred as a result of the delays.

99. We reviewed HMRC’s ‘Complaint and Remedy Guidance Manual’. In the section on unreasonable delay (CRG5525) it says ‘claims arising from unreasonable delay will vary and each should be treated on its own merits’. In the section on payments for worry and distress (CRG6075) it says:

‘Our payments for worry and distress are meant to be a token – a way of acknowledging that our mistakes and delays have affected someone badly. They are not akin to damages and payment does not, in any way, amount to an admission of any legal liability. The payments will usually range between £25 and £500, but experience shows that the vast majority of payments are at the lower end of this range’.

100. We referred to our Guidance, specifically our severity of injustice scale. This allowed us to take a view on the level of impact we believe the HMRC poor service Mr I experienced had on him.

101. In our view, the gaps between communications from HMRC would have been a persistent source of frustration. As the deadline neared, it would likely also have become more of a worry and resulted in some distress.

102. Our view is this impact of frustration and distress is a level two on our scale. Therefore, the £150 already provided by HMRC is enough to put right the impact of its mistakes.

103. Mr I tells us HMRC’s delays affected his ability to meet the 30 September deadline. When Mr I received a Tier 2 complaint response dated 14 September 2020, HMRC told him the information he and his advisers had asked for would be with them in the next few days. Mr I emailed HMRC on 25 September 2020 and said he had not received the revised settlement offer as it had stated he would. The deadline of 30 September 2020 passed without a revised offer being issued.

104. On 2 October 2020 Mr I’s advisers wrote to HMRC to complain about how the matters had been handled, and on 13 October 2020 they received a response explaining he had completed the internal complaint process and had already been referred to the AO as the next stage of the complaints process. The letter also said it was looking into the CAT’s failure to provide the information. Mr I emailed HMRC again on 16 October 2020 to say he had still not received a revised offer.

105. HMRC therefore did not meet its promise to provide the revised offer within the timeframe it said it would. In our view, this is evidence HMRC did something that was wrong and not in line with our Principles of Good Administration, which say ‘public bodies should do what they say they are going to do’.

106. Mr I told us he incurred considerable costs after 30 September 2020 as he needed to get legal support and make extensive use of his advisers. He told us he ‘cannot begin to quantify also the mental anguish this has caused him as he was of the understanding from his MP and HMRC that all involved were concluding settlement in good faith and the loan charge wouldn’t apply’. He added he had no income at all in that period due to COVID-19.

107. The AO considered this. It identified the failure to provide the revised settlement figure by the expected time had caused Mr I additional distress and worry and asked HMRC to pay Mr I a further £100 to put it right. We referred to HMRC’s ‘Complaints and Remedy Guidance Manual’ and section CRG6075 quoted above.

108. This payment is in line with that guidance. However, we also referred to our own guidance, our severity of injustice scale, to establish whether that compensation put right the impact Mr I experienced. We also referred to our internal records to make sure our views are consistent with steps we have previously recommended in similar cases.

109. We first defined the period over which Mr I had to wait to receive the revised offer. We established HMRC told him on or around 14 September 2020 that he would have the information in a few days.

110. In a letter to Mr I dated 5 November 2020, HMRC told him that based on the information he had provided (HMRC’s failure to provide the revised offer), it considered there were exceptional circumstances that meant he had not been able to meet the 30 September 2020 deadline and it would be in touch with him to provide an alternative settlement date. It wrote to him again on 27 November 2020 with a revised offer and the steps he would need to take to accept that offer. The new deadline was now 18 December 2020.

111. We asked Mr I about this extension of the deadline and told us on 22 March 2022 that ‘beyond all doubt, no alternative date was offered by HMRC’. We asked HMRC if it had only written to Mr I at his address in the Netherlands, knowing he was in China at that time, and it explained it had also emailed the offer to take account of the fact he was away from home.

112. We have seen evidence of the letters and the email with the offer attached that was sent to Mr I. We have checked the email address against our records and are satisfied it was sent to the correct address.

113. The evidence available to us therefore shows the period over which Mr I went without a revised offer and suffered the distress and anxiety associated with that was 14 September to 27 November 2020, which is approximately 11 weeks.

114. As before, we have considered both HMRC’s ‘Complaint and Remedy Guidance Manual’ and our Guidance. We have already identified Mr I would have been more distressed and worried as the 30 September 2020 deadline approached. Believing HMRC was going to provide the figures his adviser wanted to complete his settlement agreement, he was clearly frustrated it had failed to do so in the timescale it had said it would. This failure resulted in him missing the original deadline for submission.

115. Mr I tells us at this point he felt HMRC had forced him down a route that meant he had little say in the outcome and he was being forced to pay what HMRC said was due, without enough information for him or his adviser to confirm that. He told us he feared he would lose his home in the UK and the impact on him and his family would be devastating.

116. We recognise there was a significant period during which Mr I could have simply signed the settlement agreements HMRC had sent to him, but it is reasonable for him to want to make sure the figures matched what he believed he owed, or at least have HMRC explain why they did not. As the deadline approached, on 14 September 2020 HMRC offered to provide what appears to be the detail Mr I and his advisers sought to be able to make an informed decision on a final settlement figure.

117. For the 11 weeks from the failed communication to the actual detail being provided, Mr I was left in a position of uncertainty, distress and continued worry. While we have already accounted for the distress he was already feeling due to delays in communication by HMRC in the 12 months before, that was compounded by this later error.

118. In our view, the failing Mr I experienced would have had a bigger impact on him than the previous issues identified, but for a shorter period of time. As such, we consider this to be a level two on our severity of injustice scale, and we have taken into account the AO recommendation that HMRC pay Mr I an additional £100. Our view is this additional amount is enough to put right the failing Mr I experienced in the 11-week period we identified.

119. Mr I told us he incurred additional costs as a result of the missed deadline. We can see HMRC considered costs he incurred prior to 30 September, as submitted by his advisers, and it repaid a proportion of those. The advisers also presented a claim for costs of £150 on 2 October 2020 for their services, and HMRC paid this.

120. We have not seen any requests within the timeline of this investigation for additional costs or fees relating to the delay to be reimbursed. As such, we have not seen any sign there was an outstanding financial loss or HMRC had failed to consider Mr I’s requests for reimbursement in line with its remedy guidance.

121. We can see from the evidence available to us HMRC provided answers to many of Mr I’s questions but not all of them. We have not seen any evidence HMRC deliberately failed to respond rather than making a genuine error. We have already identified in the sections above that the service he received was not in line with applicable standards, but there is nothing to suggest this was deliberate.

122. One point that particularly frustrated Mr I was HMRC’s unwillingness to provide details about any meetings or communications it had with one of his scheme providers. Mr I felt it was underhand for HMRC to engage with the provider when he believed it had some responsibility for his current predicament and large tax bill.

123. HMRC replied on 17 November 2020 saying there had been no face-to-face meetings with the provider. Mr I also provided a message he had received from the scheme saying a phone conversation had taken place between a member of their staff and a contact at HMRC; however, that message also confirms no meetings took place between them and HMRC.

124. Mr I complained about this and said he wanted HMRC to share the details of these communications. HMRC responded on 17 December 2020 at Tier 1 of its process saying the evidence had been examined and there was nothing to suggest it had acted improperly in respect of the communication timeline. It explained it was ‘always in discussions with agents/promoters regarding their activities and those of their clients where it pertains to reporting and paying the correct amount of tax. This is the case with regards to HMRC’s dealings with [the provider]’.

125. It continued, ‘due to our strict rules on confidentiality we are unable to comment on the tax affairs of other customers including agents/promoters of tax avoidance schemes’.

126. We asked HMRC to share this evidence with us and we reviewed the information provided. We are satisfied there is no sign HMRC did anything wrong and we think it is acting in line with our Principles of Good Administration in being open and transparent about the reasons for its decision not to share the communications with Mr I. If Mr I continues to have concerns about HMRC’s data handling practices, he may want to approach the ICO and ask it to consider HMRC’s application of the applicable data protection rules.

127. On the matter of the complaint responses not always answering the points contained in the complaint, we have seen HMRC recognised a failure to address all his concerns in its Tier 1 response. In our view, this is a failing, as it is not in line with our Principles of Good Complaint Handling, and it likely caused Mr I a small amount of avoidable frustration.

128. As we explained earlier in this report, HMRC offered financial compensation to put right the impact of frustration caused by this error in complaint handling and the impact of the delays Mr I experienced. In our view, the impact of this failing has been put right in line with HMRC’s ‘Complaint and Remedy Guidance Manual’ and our severity of injustice scale.

129. Mr I told us he incurred expenses as a pilot, for example:

• noise-cancelling headsets costing £500 every two years • hotel and travel expenses of £20,300 over the period • uniform expenses of £1,022 per annum • a medical check fee of £180 per annum.

130. As we referred to above, the letter from HMRC to Mr I of 27 November 2020 said:

‘The expenses you’ve claimed: We’ve looked at expenses you’ve claimed and have allowed some of the amount you claimed. The enclosed calculations include the amount we’ve allowed.’

131. In HMRC’s October 2022 issue briefing (published for external organisations who want to know more about its work), it sets out its position on expense claims from individuals who have used a disguised remuneration loan scheme:

‘Expenses

For the purposes of settling disguised remuneration scheme use under the 2020 terms, if HMRC needs to work out taxable profits when calculating the tax liability arising from the scheme use, actual expenses incurred are allowable as a deduction. Those expenses must have been incurred wholly and exclusively for the purposes of the trade, or wholly, exclusively and necessarily in the case of employment.

Settlement agreements can therefore take business expenditure into account when customers ask us to look at the expenses incurred. HMRC considers expense claims on a case-by-case basis, and our decision is dependent on the specific details of each claim.

HMRC will undertake assurance to establish the correct level of expenses. This may include asking for information and evidence.

Customers should tell us the actual amount of expenses they believe they incurred. The expenses cannot have been reimbursed and they cannot have been claimed elsewhere for tax relief purposes. If customers do not have records, an estimate can be made, with accompanying explanation as to how the estimate was arrived at. From this, HMRC will consider whether it appears reasonable and whether further assurance will be required.

Expenses cannot be deducted from loan charge liabilities’.

132. We have not seen any evidence up to the time the complaint was brought to us that Mr I has provided evidence of specific expenses to HMRC and then had those expenses rejected without explanation. On the basis of the evidence we have seen, Mr I has estimated his expenses and HMRC has taken a view on that estimate and paid a proportion of it. In our view, this is in line with the guidance above.

133. We cannot take any view on the final settlement figure Mr I agreed with HMRC, as this is a legally binding contract. If he wants to revisit those figures, he may want to obtain legal advice. However, to the extent we can consider a complaint that HMRC did not appropriately act in line with its guidance and standards in considering his evidence regarding expenses, we have seen no signs HMRC did anything wrong.

134. Mr I said HMRC’s complaint responses used language from its behavioural insights team, which was an attempt to ‘use psychological manipulation on me’. He said this was ‘emotional abuse’ intended to ‘make me think what I have done is wrong’. He said he believed he was ‘part of an experiment undertaken on loan charge victims and he had not agreed to that’.

135. We have not seen anything to suggest the behavioural insights team had any involvement in preparing statements such as those HMRC made when it responded to Mr I’s complaint. Nor have we seen anything to suggest it would be inappropriate if it did.

136. As the Cabinet Office explains in ‘Developing Public Policy with Randomised Controlled Trials’, the behavioural insights team will apply behavioural science to make the work of public bodies more effective. When HMRC is looking at individuals who it believes have not complied with tax law, it is trying to improve taxpayer compliance with that law, in line with its goal to ‘make sure that the money is available to fund the UK’s public services’ and ‘close the tax gap’. (The tax gap is the difference between tax legally due and what is actually paid).

137. It is open and transparent about that goal, as is clear from its publicly accessible website and the standards we have referred to in the ‘evidence’ section of this report. Therefore, in our view it has acted in line with our Principles of Good Administration, which say organisations ‘should be transparent and information should be handled as openly as the law allows’.

138. Mr I says he wants to pay what he owes. However, he complains the settlement process is unfair because it forces him ‘to admit guilt for something I am entirely innocent of doing’. He believes he used ‘schemes that HMRC told him were legal and above board’.

139. The question of whether those schemes were appropriate and the charges that an individual using them may have to pay (such as the loan charge and interest) are a matter for the courts to decide. We can see Mr I has already approached the courts on the matter of the loan charge.

140. HMRC told him settlement gives an option ‘to resolve an open tax dispute in a cost-effective manner, without the expense, delay and worry of litigation. Customers who do not agree to the settlement terms are not obliged to settle and are free to pursue a dispute through the legal process if they believe tax is not due in their case’.

141. HMRC told us Mr I could have told it if its calculations were incorrect. If it agreed with him, it would amend them accordingly. If HMRC and Mr I could not agree settlement figures, it would issue a formal closure notice, meaning Mr I could appeal to a tribunal.

142. These responses appear to be supported by the evidence and guidance that are relevant to this issue. This includes HMRC’s ‘Litigation and Settlement Strategy’, which says HMRC has to resolve disputes about what tax is owed through settlement only if this results in the full recovery of all tax it believes needs to be paid.

143. Based on this, in our view Mr I did not have to sign any documents or agree a settlement if he did not believe the outcome was fair and accurate, as he had an alternative option open to him. If he seeks legal recognition that he acted legally and HMRC did not, he will need to approach the courts.

144. However, to the extent we may consider whether HMRC acted in line with applicable standards and guidance, we have seen no sign HMRC did anything wrong. We are aware Mr I remains worried and frustrated by his current relationship with HMRC on these matters, and we hope the explanations provided reassure him we have considered his concerns thoroughly and independently.

1. The Parliamentary and Health Service Ombudsman has carefully considered this complaint from Mr I. We understand he feels very strongly that HM Revenue & Customs (HMRC) has not treated him fairly in its decisions about a disguised remuneration loan scheme and the outcome has left him deeply frustrated and distressed.

2. Having considered these issues carefully, there is nothing to suggest HMRC deliberately ignored Mr I’s efforts to settle the debt he owes, but we can see it did delay in providing information he needed to reach an informed view on the amount he owed.

3. Our decision is HMRC failed to give Mr I information it had agreed to provide. As a result of this, he missed a deadline for submission he was told could not be extended. This means HMRC did something wrong. However, in our view HMRC has already put right the impact of that failing - the stress and frustration Mr I experienced - by apologising and awarding him financial compensation.

4. There is no evidence HMRC gave Mr I wrong advice on whether the disguised remuneration loan scheme was legal or about the character of the company running that scheme. In our view, HMRC has acted in line with the relevant standards apart from the delays mentioned above.

5. We therefore do not uphold this complaint, and we explain our views in more detail below.