Navigating HMRC tax investigations and mental health

Will HMRC take my mental health into account when dealing with me?

HMRC recognises the potential impact of its actions on the mental health of those they are investigating. An extra support team is available within HMRC to assist those who are struggling to deal with their tax affairs or an open enquiry. Furthermore, HMRC must act in accordance with the Equality Act 2010 and make reasonable adjustments where necessary. 

However, HMRC cannot take any potential mental health issues into account where they are not aware of them. It’s therefore crucial that such matters are brought to HMRC’s attention at the earliest opportunity.

Can mental health be used as a reasonable excuse?

Where errors are identified in a taxpayer’s affairs, HMRC will, in most cases, seek to impose penalties unless that taxpayer has a reasonable excuse for those errors. HMRC guidance describes a reasonable excuse as “something that stopped you meeting a tax obligation that you took reasonable care to meet”. The guidance also goes on to list some examples which HMRC would constitute a valid reasonable excuse. While this list does not specifically mention mental health, one example given is “a serious or life-threatening illness”.

Clearly, illness relating to mental health can both be serious and life threatening, and HMRC should consider mental health as a potential reasonable excuse in the right circumstances.

As with all penalty mitigation discussions, timing is a key consideration and evidencing a period of any mental health issue is crucial. A reasonable excuse argument would only apply for the period in which the taxpayer’s mental health directly impacted their ability to deal, or failure to deal, with a particular tax matter.

Due to the stigma still associated to mental health, and as individuals don’t always seek help when struggling with mental health issues, it can at times be challenging to evidence a reasonable excuse argument on mental health grounds. Often, HMRC will require written confirmation of the condition and how it affected the taxpayers’ ability to comply, or failure to comply, with their tax obligations from a doctor or suitably qualified mental health professional. Therefore, where such evidence is not available, it’s even more crucial that specialist representation is sought.

What options are available should HMRC not appropriately consider mental health?

Should you disagree with a HMRC decision, as you feel due consideration has not been given to any mental health issues, you may challenge this through the appeal process and/or by taking the case to Tax Tribunal. 

In two previous First Tier Tribunal (FTT) cases (Futcher v HMRC and Mr Patrick Dowds v HMRC), both Appellants cited mental health issues, with the added effect of COVID-19 in exacerbating these. However, in both cases the Appellant’s tax irregularities were found to be consequences of deliberate actions before they began experiencing mental health difficulties. Both judges indicated that in order for mental health arguments to provide valid mitigation against penalties, they must be the root of the reason for the tax irregularities arising in the first instance.

Alternative Dispute Resolution (ADR) also provides the opportunity for taxpayers and HMRC to resolve matters. As well as being less formal and intimidating than a Tribunal hearing, ADR mediation is a flexible and cost effective process allowing both sides to test the strength of their arguments. 

How does this impact me?

If you or your client are facing a penalty from HMRC in relation to a period potentially impacted by mental health difficulties, the position needs to be reviewed and considered carefully, with appropriate specialist advice being taken.

Unfortunately, mental health concerns are a common occurrence for all. While it’s positive that mental health matters are more widely discussed than ever before, many still find it hard to talk about and disclose their mental health status. Care should be taken that valid mental health concerns are not ignored and are raised appropriately with HMRC.

How we can help

We recognise that mental health considerations are a very personal and sensitive area. For this reason, our highly experienced Tax Investigation and Dispute Resolution team have all had appropriate mental health awareness training. This enables us to best support clients through a tax investigation, as we are wholly appreciative of how extremely stressful and disruptive the whole process can be. 

As part of managing any dispute with HMRC we review all relevant factors, including mental health considerations, to ensure these are fully taken into account for penalty decisions.

Get help today

Call us today on +44 (0)20 7710 3389 or fill in the form below and a member of our team will be in touch. All communications are in the strictest confidence.