17 August 2017

A UK taxpayer recently went to court to argue that a levy of around £58,000 taken from her Swiss bank account in 2013 under the terms of the Swiss/UK Tax Co-operation Agreement ("Rubik") should be refunded by HMRC. The charge was made as a consequence of her failure to complete the relevant paperwork.

While the taxpayer’s case was rejected by the court, the judgment noted that refunds of nearly £2.9 million of charges levied under Rubik have been paid by HMRC between December 2014 and September 2016. If a taxpayer believes that funds were wrongly taken under Rubik, they should seek legal advice about the circumstances in which they were taken and whether a refund is possible.

The case: Vrang v HMRC

In the case of Vrang v HMRC the taxpayer had failed to complete the paperwork sent to her by her Swiss bank in 2012. As a result, she did not consent to her account being declared to HMRC, so the Swiss bank deducted Rubik’s one-off payment from her funds and paid it to HMRC.

The taxpayer sought a refund from HMRC on the grounds that the payment had been wrongfully levied as her outstanding UK tax liability was in fact somewhere between £1,000 and £7,000 and not the far greater amount (£57,865) actually deducted.

Her argument was rejected by HMRC as the sum had been correctly levied under the terms of Rubik, even if was not a true reflection of the taxes she in fact owed.

The argument

On taking the matter to court, the taxpayer argued that HMRC had gone beyond its powers in levying the charge and challenged HMRC’s rejection on the following grounds:

  • HMRC had no Parliamentary authority to levy the charge.
  • If there was legislative authority for the charge, HMRC had misconstrued it.
  • HMRC had not exercised its discretionary powers lawfully.

The decision

The judge dismissed these grounds, although had "considerable sympathy" for the taxpayer on the third point. Her case did not fall within HMRC's policy on refunds however, and the judge ruled that HMRC had acted lawfully in developing its policy on refunds and in rejecting the taxpayer’s claim.

What next?

It is clear from this case that a taxpayer will have to fall precisely within HMRC's limited criteria in order for HMRC to allow a refund under the Swiss/UK ‘Rubik’ Agreement.

However, HMRC will allow claims for refunds where it can be shown that the payment has not been levied in exact accordance with the terms of Rubik. In addition, HMRC does have some discretion to allow refunds in cases of "extreme economic circumstances".

If a taxpayer believes that funds were wrongfully deducted under Rubik he or she should seek professional advice as soon as possible and before enough time passes to make HMRC’s willingness to use its discretion less likely.

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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