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You won’t have heard of “Operation Minimus”, but I am worried it could set a dangerous precedent for how HM Revenue & Customs treats taxpayers.
The taxman has launched this criminal investigation into stamp duty reclaims that it believes may have been made unlawfully. This follows an admission from HMRC that it has already paid out millions of pounds in reclaims without first checking whether they were valid.
The whole issue stems back to 2016 with the introduction by the Government of a 3 percentage point stamp duty “surcharge” on second homes and buy-to-let properties. The legislation refers to the purchase of a dwelling, or to be more precise, a property which is “suitable for use as a single dwelling”. Which raises the question: what about a property which is derelict or otherwise unsuitable for use?
Legal guidance for this was provided in 2019 following the purchase by a Mr and Mrs Bewley of a derelict bungalow in Weston-super-Mare.
The couple argued that the property was in such poor condition – with no heating, asbestos in the fabric and fit only for demolition – that it was not suitable for use as a dwelling so that the 3pc surcharge should not apply. HMRC disagreed and took the case to court, with Mr and Mrs Bewley representing themselves.
The tribunal judges were unimpressed with the various arguments proposed by HMRC, commenting: “On several occasions during HMRC’s submissions on the case we found ourselves wondering what the relevance of the point being made was. We still do wonder.”
They continued: “No doubt a passing tramp or group of squatters could have lived in the bungalow as it was on the date of purchase… but we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.”
When this decision was published it attracted the attention of specialist lawyers and property agents who believed that HMRC had previously been applying the rules restrictively and that the judgment gave authority for reclaims of stamp duty already paid.
It was clear from the judgment that whether an acquisition was caught for the 3pc surcharge depended critically on the facts and evidence of each case.
Despite this, HMRC decided to apply a “pay now, check later” approach which meant that millions of pounds was paid out without checks on the validity of the claims. This attracted a number of repayment agents offering their services on a no win, no fee basis but taking a large percentage of any reclaims achieved.
You can find such agencies with an online search, usually quoting the amounts they have reclaimed. I have reservations about such agencies and have written before about problems that some readers have experienced. They are, however, legal and serve a purpose for appropriate customers. Nevertheless, HMRC is suspicious of how they operate and it has run a publicity campaign to warn potential customers.
It does no harm for HMRC to warn of the risks of making doubtful claims. There have been two subsequent cases but these do not overturn the essential principles in the Bewley judgment.
Instead, matters have taken an altogether different turn.
A few weeks ago a reader contacted me who was involved in a stamp duty repayment claim through a specialist rebate company which I will call ABC Ltd. He had provided all the relevant documentation and survey information to HMRC as requested. He was therefore concerned and mystified to receive the following email from HMRC.
“As an investigation team we need to establish who is complicit, who if anyone has been misled, and if anyone has in fact been coerced into using the services of ABC Ltd. It is not necessarily the case that everyone interviewed will be prosecuted and, in some circumstances, may become a witness for the prosecution Operation Minimus.”
I have subsequently spoken to well-placed sources who tell me that HMRC is mounting this criminal investigation into over 30 refund claims, and that this may be the start of a wider exercise.
An HMRC spokesman told me: “Many of the stamp duty claims we receive from repayment agents are wrong and some will make incorrect claims just so they can charge a fee. If someone promises easy money and it sounds too good to be true, it probably is. Where a claim is wrong, the purchaser is liable to pay back all the tax that was refunded, with interest and could also have to pay a penalty of up to 100pc of the tax refund.”
My concern is that this investigation is being taken using criminal powers. The published policy of HMRC to limit this to only a number of rare circumstances of which the most relevant would seem to involve materially false documents provided in the course of a civil investigation.
Taking a criminal prosecution is an extremely powerful step and if applied incorrectly can ruin lives for the innocent and guilty alike, as well as their families. Entirely innocent people may be advised to plead guilty just to avoid the risk of a custodial sentence, but nevertheless be left with this blight on their lives and reputation.
If HMRC can establish that it has been presented with materially false documentation it would justify this investigation. It would also serve as a warning to claimants using repayment agencies that they need to monitor carefully what documents are being submitted on their behalf.
In the absence of such evidence, however, I would expect a matter like this to be dealt with through the civil courts in the normal way.
Mike Warburton was previously a tax director with accountants Grant Thornton and is now retired. His columns should not be taken as advice, or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Email your tax questions to Mike via email: taxhacks@telegraph.co.uk
HMRC investigation sets a dangerous precedent
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