Taxing taxation

The approach to the 31 January each year is often a stressful time for private client advisers. Chasing financial institutions and clients for the required information to enable us to complete a client's tax return can be taxing enough for professional, never mind lay individuals.

Spare a thought for those vulnerable individuals who may not have the capacity or time, to consider, complete and lodge their tax return in time with HM Revenue & Customs. HMRC's recent guidance published on 21 December 2015, regarding the direct recovery of debts provides what, in my view, is a sensible solution to cases involving vulnerable individuals.

The guidance highlights the fact that HMRC will adopt an approach of not applying their powers of direct recovery against vulnerable people. In cases where an individual is at a disadvantage, HMRC will consider whether the direct recovery of debts is an appropriate step to take and will consider what reasonable adjustments may be made in such cases.

HMRC's definition of a vulnerable individual ranges from people with a disability or a long term health condition, right through to individuals with a low level of literacy or education.

Having acted in attorney, deputy, trustee and estate administration matters, I have come across a variety of scenarios in practice involving individuals at different ends of this vulnerability spectrum.

What is pleasing to note from an adviser's point of view is that HMRC are becoming increasingly more open to discussions concerning a client's state of vulnerability, and in the majority of cases, are happy to show a degree of flexibility in connection with timings and the issue of penalties for the non-filing or late filing of tax returns, and matters such as non-payment of tax.

The right thing to do

As part of a recent estate administration I was acting in, the deceased was incapacitated for six years prior to death. The deceased had not made a lasting power of attorney during his lifetime and due to my late involvement with this matter, steps were not able
to be taken to appoint a deputy to manage his affairs during his lifetime. Penalties had been charged by HMRC for the non-payment of tax and late filing
of returns.

During his lifetime, the deceased was not in a position to prepare and submit his own tax returns, and there was no-one in a position of authority to assist him in this regard.

After having advised the treasury of the facts in this case, they took (what in my view) was a common sense and appropriate step; HMRC cancelled the penalties for late filing and the penalty interest that had accrued. The deceased in this case was aged 44 and prior to his illness, had been running a very successful company.

What this case highlighted for me was that advice should be provided to clients to ensure that steps are taken as soon as possible to put in place measures to protect them in the event of incapacity.

The implementation of the new lasting power of attorney forms make the process of electing an attorney and regularising affairs simpler. But I would always strongly advise clients to take legal advice in connection with the content of their lasting powers of attorney.

Too often I see LPAs that are too restrictive and do not include those individuals that the donor actually wanted to be in the position to manage their affairs. 

David King is a solicitor at Hugh James

He writes the regular vulnerable clients comment in Private Client Adviser

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