HMRC interest and claims to mitigate
It is well known that HMRC take a hard line on the imposition of interest. Many advisers will have heard HMRC explain that the imposition of late payment interest is a statutory matter and discretion will only be exercised in very narrow circumstances. That is of course technically correct but there is also clearly scope for HMRC to mitigate interest in appropriate cases. Interest mitigation is considered by a specific team in HMRC and is a wholly discretionary matter. A request can be made to that team to consider interest mitigation, but there are no realistic options to dispute the decision if the request is refused. The criteria for interest mitigation are laid out in HMRC’s Debt Management and Banking Manual (at DMBM 405030) and on first glance appear to be very narrow in scope.
However, prompted by the Morse Review into the loan charge, HMRC have recently revisited their policy and a paper was produced before Christmas which might signal a change in approach (https://www.gov.uk/government/publications/interest-rate-review/interest-rate-review). The paper, quite properly, acknowledges that there have been lengthy delays in dealing with some historic enquiries into tax planning and that HMRC have failed to keep individual taxpayers updated on progress. This has resulted in taxpayers being faced with very substantial interest bills, sometimes exceeding the original tax liability. Regardless of views on the merits of widely marketed tax schemes, it seems reasonable for HMRC to take a fresh look at this issue. It has always been HMRC’s view that users of marketed avoidance arrangements should have anticipated that their filing would be challenged and should have made arrangements to make payments on account. Although there is superficial merit in this argument, it does not take into account the huge range of individual facts and circumstances which arise in these cases. At the very least, it is to be hoped that HMRC’s review will encourage a genuinely objective analysis of each taxpayer’s individual facts and circumstances when interest mitigation decisions are made.