Andrew Hubbard

Written by: Andrew Hubbard

Andrew Hubbard


HMRC's data retention policy needs an overhaul

If a taxpayer wishes to contest a penalty which HMRC has imposed the burden of proof is on HMRC. In other words, the taxpayer does not have to show why a penalty should not be imposed – it is for HMRC to demonstrate that a penalty is due.  

One of the requirements for the issue of daily penalties for failure to make a return is that HMRC should have given a taxpayer notice of the day from which the penalty is payable. So in any dispute HMRC has to show that it has given the taxpayer notice.  

It is therefore shocking to find that HMRC said in a witness statement in a recent appeal case ‘Due to HMRC’s data retention policy, HMRC does not retain copies of individual penalty notices, therefore we are unable to retrieve all of the details relevant to individual cases’. Given that there are stringent record keeping requirements for taxpayers (HMRC guidance on record keeping runs to 19 pages) and penalties for failure to keep proper records, it is astonishing that HMRC doesn’t hold itself to the same standards.  

Except that regular readers of this bulletin may not find it astonishing. It has been a concern of ours for some time now that HMRC is all too often unable to produce the evidence that it needs to prove its case in a tribunal. In the past I had thought that that was sometimes due to problems in particular cases, but this witness statement confirms that it is HMRC’s policy to deliberately not keep copies of notices.   

That cannot be right and if the policy has not already been changed, it needs to be changed immediately. I reflect in my other piece in this week’s briefing on HMRC resource issues, but surely this is not an issue here. In 2017, 840,000 people filed their income tax returns late. If we assume that the penalty notice had 10 pages of data that is 8,400,000 pages which a quick internet search suggests is about 700 metres of shelf space. In electronic form one terabyte of data is equivalent to 85 million pages, so that would store 10 years’ worth of notices.  You can buy a one terabyte hard drive for less than £50.

This is an issue of policy, not of resource. Not enough thought was given to data retention when the current HMRC IT systems were put in place. It may be too late to do anything about it now, but proper data retention processes must be built into any new systems designed for Making Tax Digital.

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