A lunatic by any other name

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In February I went to a talk about the history of tax organized by the Worshipful Company of Tax Advisers. The speaker was Professor Chantal Stebbings, the subject, ‘Victorian Asylums: the Tax Factor’.

City Livery Companies are not really my thing but I had joined when a friend of mine was Master (or should it be Mistress?) and she felt that the Company needed more of a feminine touch. Such are Penny’s powers of persuasion (she’s a member of the Tax Bar after all) that I found myself appearing on the Company’s float for the Lord Mayor’s Show in 2008 dressed up as candle tax. It rained torrentially and I had to huddle together with Window Tax and Cinema Duty in an attempt to keep dry. It is with great sadness that I have to report that all the photos were destroyed in a freak accident.

Anyway, imagine my surprise when, some six weeks after Professor Stebbings’ tour de force, the 2011 Budget Red Book announced that the HMRC would be conducting a consultation exercise on how to modernise the definition of an incapacitated person for direct tax purposes, viz. ‘any infant, person of unsound mind, lunatic, idiot or insane person.’ This definition can be traced back to the Income Tax Act 1918. Apparently the term ‘idiot’ can be found in legislation as far back as 1324 whereas ‘lunatic’ entered the legislative vocabulary in 1541.

Unable to resist the lure of political correctness and in a bid to show their human side, HMRC launched the consultation on 24 May, backed by a twenty-one page consultation document in paragraph 3.1.5 of which HMRC set out this view:

‘There is no policy reason why tax legislation has continued to use such archaic and potentially offensive terms … HMRC recognises that the presence of the current wording in the statute may, in some measure, reinforce stigmas attached to mental health conditions.’

Like me, you may consider the premise that those with mental health conditions should not be stigmatised as something of a no-brainer, rather than the stuff of a consultation exercise. But that aside, HMRC’s attitude in the document seems sanctimonious at best, when considered in the light of their behaviour in the case of Peter Graf von der Pahlen (reported as JNB Dimensions Ltd and another).

Mr von der Pahlen, who was a company director, suffered from dyslexia, Asperger’s syndrome, and a walking disability. Changes to the way HMRC operated meant that he failed to submit his companies’ PAYE end of year returns in time. HMRC imposed a late filing penalty. Von der Pahlen disputed the penalty, claiming that he had a reasonable excuse for his lateness. HMRC rejected his arguments and von der Pahlen appealed.

The businessman had had face-to-face advice from HMRC since 2004 as filling in tax documents had always caused him problems and it was not uncommon for him to drive to the local HMRC office several times a day for help. The crunch came when the face-to-face service was removed and replaced by a call centre. This compounded Mr von der Pahlen’s difficulties as a person with Asperger’s syndrome characteristically struggles with dealing with matters over the phone. The consequent stress, von der Pahlen claimed, had prevented him from filling in the forms.

He also claimed that the change from paper filing to online filing disrupted his routine as borne out by a psychologist’s report produced before the tribunal which  stated that, as a result of his condition, ‘Peter is inflexible in his routines and cannot break a routine once started’.

The tribunal agreed with HMRC that was von der Pahlen’s difficulties did not constitute a reasonable excuse as they were neither sudden nor unexpected and, as such, he could and should have made allowance for them when dealing with the filing obligations.

Even so, what possessed HMRC to take this case?

Have the lunatics finally taken over the asylum? (Apologies to the Fun Boy Three).

Tax lawyer specialising in business tax, SDLT and VAT

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