HMRC’s overwhelming resources often allows it to collect tax which is not due. A taxpayer assessed on a basis which is technically doubtful or incorrect has a difficult decision to make. Court proceedings are inherently unpredictable. HMRC can prolong them for years by utilising every level of appeal. Even if a taxpayer is finally successful, he is unlikely to recover all his direct professional costs and will have no compensation for the enormous amount of time that he will have invested in the process of litigation.
The case of Gosden and Kaye v. Halliwell Landau and Philip Laidlow is one in which the Court took notice of the likelihood that a taxpayer would acquiesce in an assessment which he considered incorrect because the costs of litigation would exceed the tax at issue.
It was a professional negligence case where the quantification of liability depended upon whether an IHT charge would have been exigible on a property on the death of its owner. The defendant presented no evidence to show that IHT would have been chargeable but the Judge accepted evidence that it was likely that HMRC would have challenged the efficacy of the tax planning steps which had been taken and concluded:
‘The reality is that given the modest sums at stake here, the costs even of arguing this issue before the [FtT] would be likely to make resisting such a challenge practically impossible.…’
‘… the tax payable would have been … £220,000. In my judgment it is probable that the costs of contesting the payment of IHT would have equalled or exceeded that sum. That factor together with the risk of losing makes it highly probable that the estate would have sought a compromise with HMRC.’
The Judge’s decision was wholly realistic and graphically illustrates the difficulty the taxpayer faces, in his David and Goliath contest with HMRC, in obtaining justice when HMRC takes, as it often does, a hard-headed decision to tax on a basis which is not in accordance with the law.